sustainable investment in the middle east and north africa...
Post on 02-Jun-2020
0 Views
Preview:
TRANSCRIPT
Sustainable Investment in the Middle East and North AfricaRegion Report
IFC Advisory Services in the Middle East and North Africa
Italy, Ireland, Luxembourg, Netherlands, Norway, and the United States
In partnership with:
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
IFC, a member of the World Bank Group, creates opportunity for people to escape poverty and improve their lives. We foster
sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and
providing advisory and risk mitigation services to businesses and governments. This report was commissioned by IFC through
The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views
of, IFC or its Board of Directors or the World Bank or its Executive Directors, or the countries they represent. IFC and the World
Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their
use.
2009 © International Finance Corporation (IFC)
2121 Pennsylvania Avenue NW
Washington, D.C. 20433, USA
Telephone: 202–473–1000
Internet: IFC.org
All rights reserved
This information, while based on sources that IFC considers to be reliable, is not guaranteed as to accuracy and does not
purport to be complete. This information shall not be construed, implicitly or explicitly, as containing any investment recommen-
dations and, accordingly, IFC is not registered under the U.S. Investment Advisers Act of 1940.
The denominations and geographical names in this publication are used solely for the convenience of the reader and do not
endorsement or acceptance of such boundaries.
Any views expressed herein are those of the authors and do not necessarily represent the views of the World Bank or the
International Finance Corporation.
Rights and Permissions
The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may
be a violation of applicable law. The World Bank Group encourages dissemination of its work and will normally grant permission
to reproduce portions of the work promptly.
For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright
Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978–750–8400; facsimile: 978–750–4470;
Internet: www.copyright.com
The World Bank, 1818 H Street NW, Washington, D.C. 20433, USA; facsimile: 202–522–2422; e-mail:
pubrights@worldbank.org.
Acknowledgements ..........................................................................................................................................................................6
Executive Summary ...........................................................................................................................................................................8
1. Introduction .....................................................................................................................................................................................15
Objectives ............................................................................................................................................................................... 15
Scope ......................................................................................................................................................................................... 15
Report Structure ................................................................................................................................................................. 15
2. Regional Overview....................................................................................................................................................................17
Region’s Material ESG Issues ................................................................................................................................... 17
Region’s Economic Fundamentals ......................................................................................................................... 17
Water Scarcity .................................................................................................................................................................... 19
Building a Competitive, Diverse, Employed and Respected Labor Force .................................20
Economic Sectors Breakdown ................................................................................................................................21
FDI and Outward Investment ....................................................................................................................................24
MENA Securities Markets ..........................................................................................................................................27
3. Market Preparedness for SI ............................................................................................................................................29
Investment and ESG Regulations and Country Performance ..................................................................30
Investment Laws and Regulations ....................................................................................................................................32
Corporate Governance Laws and Regulations and Country Performance .................................. 37
Environmental Laws and Regulations and Country Performance ........................................................43
Social-Related Laws and Regulations and Country Performance ........................................................51
ESG Disclosure .................................................................................................................................................................................. 61
Sustainability Reporting and Non-Financial Information Disclosure .................................................. 61
Adoption of International Voluntary SI Frameworks by Asset Managers/Owners ..................65
ESG Disclosure Analysis .........................................................................................................................................................67
Supporting Infrastructure ...........................................................................................................................................................69
Responsible Competitiveness Research ...................................................................................................................69
Analysis and Summary of Key Observations ...........................................................................................................71
Contents
4. Market Interest in SI .................................................................................................................................................................73
Shari’ah-Compliant Investing ................................................................................................................................................. 75
Sovereign Wealth Funds ............................................................................................................................................................76
Private Equity .......................................................................................................................................................................................86
Foreign Investment .........................................................................................................................................................................93
Analysis and Summary of Key Observations ..........................................................................................................95
5. Challenges and Opportunities for Development of the Sustainable Investment Market in MENA ...............................................................................................................................................................................................98
Key Challenges and Opportunities ................................................................................................................................ 101
Recommendations .......................................................................................................................................................................102
6. Appendices ............................................................................................................................................................................................
Appendix 1: Explanation of the Methodology .......................................................................................................107
Appendix 2: In-depth review of 11 key markets ...................................................................................................110
Appendix 3: Regional Supporting Infrastructure ................................................................................................144
Appendix 4: Exchange Rates Used ..............................................................................................................................150
Appendix 5: Explanation of Terms and Abbreviations ...................................................................................151
IGNISI BLA CORE ESED EA CONULLA FEUGAIT, QUIPISIM XX
For the past five years, IFC’s Sustainable Investing Team has delivered
technical and financial support for projects that aim to mobilize
sustainable capital flows into emerging markets. The goal is to increase
the volume of investment that uses ESG analysis as a standard practice
in investment decisions.
Preface
IFC’s approach is twofold:sustainable investing (SI), IFC works to (a) promote the business case for SI by drawing
on lessons from IFC’s own portfolio, (b) establish frameworks to identify and assess new SI opportunities, and (c) develop new
To support fund managers investing in sustainable companies, IFC works (a) with private equity funds in IFC’s portfolio to assist them in establishing ESG analytical processes, and (b) with capital market actors to improve the environment for the market to
IFC is committed to continue its work in partnership with key market actors to improve the enabling environment and address
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 20106
Country Organization
Egypt EFG Hermes
Egypt Egyptian Institute of Directors
Egypt Egyptian Corporate Responsibility Center, Ministry of Investment
Jordan Amman Stock Exchange
Jordan Jordan Securities Commission
Jordan Jordan Investment Board
Jordan Association of Banks
Jordan Social Security Investment Fund
Morocco American Chamber of Commerce in Morocco
Oman Oman Arab Bank
Saudi Arabia Dhahran Chamber of Commerce-Saudi Arabia
Saudi Arabia Islamic Development Bank
Morocco American Chamber of Commerce in Morocco
UAE, Abu Dhabi National Bank of Abu Dhabi
UAE, Dubai Abraaj Capital
UAE, Dubai Hawkamah, the Institute for Corporate Governance
Acknowledgements
RegionalOrganizationsEngaged
IFC would like to acknowledge our donors partners: Italy, Ireland, Luxemborg, Netherlands, Norway, and
IFC prepared this reports under the supervision of IFC Advisory Services Middle East and North Africa
(MENA)
the Arab region providing strategic sustainability advisory services, developing national competitiveness
7
InternationalOrganizationsEngaged
Organization
UN PRI – Emerging Markets Program
UNEP FI
Goldman Sachs Sustain
Calvert
S&P
World Economic Forum
University of Oxford
Urban Green
Initiative for Responsible Investment, Harvard
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 20108
Executive SummaryObjectives and Scope
To determine the current state of development of SI in MENA by measuring the market on a
To establish the feasibility of interventions such as sustainability indices, ratings and regulations to stimulate the market and make recommendations for the appropriate
For the purposes of this report, SI is taken to mean investment techniques that integrate ESG value
Regional Context and Key ESG Issues
The MENA region produces more than $1,500 billion per annum in Gross Domestic Product (GDP), or approximately three percent of global GDP1, and accounts for 6 percent of the global population with300 million people2
population is below the age of 30 and roughly 27 percent is below the age of 15, the contribution of women to economic and social development and opportunities for women in the workplace, and
climate change, while governance issues center around ongoing governance reform and the push
Assessment
This assessment is based on an analysis of “Market Preparedness” and current “Market
1
2
9
Overall opportunity for SI in MENA markets
CountryGDP*
($billions)
Market
Prepared-ness
Score (%)
Market Interest
Score
(%)
Market Interest Score
(%) without Shari’ah-
Compliant Investments
(%)
Bahrain 28.124 42.67 3.3 0.01
Egypt 469.663 37.1 2.30 1.71
Jordan 33.658 40.06 1.90 1.25
Kuwait 135.429 39.34 0.40 0.06
Lebanon 54.874 34.67 0.60 0.13
Morocco 145.969 37.41 0.70 0.70
Oman 74.431 51.56 14.30 0.05
Qatar 102.147 43.34 0.40 0.00SaudiArabia 592.586 38.67 2.90 0.03
Tunisia 86.086 41.09 1.50 1.50
UAE 179.321 47.83 2.50 1.70
*Based on PPPSource: Research and analysis conducted for this report
Market Preparedness
The Market Preparedness assessment covers two main components: investment, ESG regulations
MENA countries have made important strides, although many areas are still in the very early
established new requirements, but this has not yet extended to the environmental and social
sustainable development is now being incorporated into some national strategic plans, it is at
Addressing such implementation gaps will be important to bolster MENA’s sustainability
With regard to ESG disclosure:
The number of corporate ESG reporters and the number of signatories to existing international
the Arab Sustainability Leadership Group and Abu Dhabi Sustainability Group—which seek to introduce sustainability practices in the region and require participants to produce a standalone
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201010
Overall, the markets are mainly tightly clustered, suggesting that some
countries are at similar points of development and that it may be pos-
sible to undertake regional or sub-regional efforts to enhance Market
Preparedness for SI.
345 6 7
Market Interest
The Market Interest component of the study attempts to quantify the percentage of total assets
international comparative context are as follows (ranked by percentage of total AUM):
Market Total AUMs Related to Sustainability % of Total AUM
1 EU3 $3,700 trillion 16.97%
2 Brazil4 $70 billion 12.00%
3 USA5 $2,700 trillion 11.02%
4 MENA $54.25 billion 2.13%
5 China6 $4.12 billion 1.00%
6 MENA without Shari’ah- compliant investments $17.1 billion 0.67%
7 India7 $1.1 billion 0.67%
Source: Research and analysis conducted for this report
3 Eurosif: 2008 European SRI study
5 Social Investment Forum 2007
11
Approximately 2.13 percent of MENA AUMs incorporate SI. This is a conservative estimate based solely on disclosed data, and excludes publicly committed investments which cannot
including Shari’ah-compliant investment
Shari’ah-compliant investment funds are similar to “negative-screen” SI funds and their current scale of awareness and uptake represent a potential mass platform for creating greater awareness of SI. Elsewhere in the world, negative-screen funds typically precede positively screened SI funds that then adopt increasingly aggressive criteria for environmental, social and
pattern, their commitment to Islamic ideals and general interest in betterment of society has the
SI uptake by market investors in MENA is likely to take some time, although it will likely advance within dramatically compacted timelines in comparison to Europe and North America. In addition to the currently low percentage of MENA SI AUM versus total AUM, there is presently a lack of interest in investing in securities due to heavy market losses in
Nevertheless, the take-up of SI in the region will be dramatically accelerated compared to the timeline in North America and Europe, with expectations of high levels of SI AUM within 3-5
Private equity SI initiatives will have a disproportionate impact on Market Interest
management by portfolio companies, and emerging clean technology investment opportunities
Sovereign wealth funds represent the greatest MENA SI opportunity
national agendas, including emerging theme-based investments in sustainability and clean
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201012
Some foreign-based guidelinesEquator Principles, and other international guidelines will provide some support for the adoption of SI
13
Recommendations
The following table summarizes the above observations, their associated challenges and opportunities, and the corresponding recommendations for accelerating the creation of an SI
Key Observations
Challenge / Opportunity
Recommended Action
MENA SI levels are low, but not
The current scale of Shari’ah-compliant funds represents a potential mass platform for increasing awareness of SI.Private equity SI initiatives will have a disproportionate impact on Market Interest.SI uptake in MENA is likely to take some time.
Create awareness of the case for sustainability for business and government.
Encourage membership in sustainability networks such as the Arab Sustainability Leadership Group and the Abu Dhabi Sustainability Group, and foster SI sub-committees within such networks.
Launch region-wide training on the business case for institutional investors.
Accelerate integration of sustainability into national competitiveness strategies.
Launch an SI magazine/newsletter.
Foreign SI investment in MENA is at very low levels, primarily due to lack of disclosure.
Ensure availability of corporate ESG data in the marketplace for use by investors.
Promote widespread Sustainability Reporting:
� Incentivize disclosure through the launch of Sustainability Indices at a regional and/or national level, as may be relevant based on market size, market interest, level and maturity of public sustainability disclosure and regulatory environment.
� Incentivize disclosure using awards.
Securities markets have initiated
but this has not yet extended to the environmental and social elements of ESG.
Align securities markets reforms to national sustainability interests and disclosure interests.
Expand governance reform and criteria on securities markets to include management and disclosure of environmental and social elements of ESG.
Some foreign-based guidelines (such as GRI, UN Global Compact, UNPRI, and others) will provide some support for the adoption of SI.
Reduce hesitation of potential early adopters by utilizing well-established international guidelines.
Leverage international agreements and tools to accelerate speed and ease of take-up.
leadership companies and governments from using these guidelines.
There is a growing recognition of a need for action on some pressing sustainability issues.
Mobilize rapid and broad disclosure and action on high priority sustainability issues.
Concentrate initial disclosure requirements on high priority regional issues (e.g. water)
initiatives on high priority sustainability issues.
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201014
The MENA market, particularly
and is heavily weighted in less sustainable industry.
Create infrastructure that supports sustainability in practice.
Promote investment and entrepreneurship in service areas critical to a more sustainable economy (e.g. recycling).
SWFs represent the greatest MENA SI opportunity.
Increase the percentage of SI AUM.
Encourage institutional fund managers to integrate sustainability into their screening criteria strictly from a risk/opportunity management perspective, regardless of any public commitment to sustainability.Over time, promote sustainability-screening as an advantage, and/or launch sustainability-screened funds.Encourage SWF portfolio companies to adopt sustainability management and reporting and engage their SWFs.
15
Objectives
To determine the current state of development of SI in MENA by measuring the market against
To establish the feasibility of interventions such as sustainability indices, ratings and regulations to stimulate the market and make recommendations for the appropriate
The sources of information include desk research and interviews over the phone and in person with
Scope
The document provides an overall assessment of the SI market in the Middle East and North
techniques considered in this report include, but are not limited to, negative screening, positive
The assessment is based on an analysis of Market Preparedness and current Market Interest
level of interest and take-up of SI in the MENA region, the report looks not only at individual and institutional investments into public markets, but also at investment practices of private equity
The assessment draws on available information from 11 key markets in the MENA region—
analysis, the 11 markets are sometimes clustered as follows:
Gulf Co-Operation Council (GCC): Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE
North Africa: Egypt, Morocco and Tunisia
Report Structure
Following this introductory chapter, Chapter 2 provides a review of MENA fundamentals, including
Chapters 3 and 4 framework (see next page) for assessing SI-readiness as follows:
Chapter 3: Market Preparedness for SI
Regulatory environment for SI—the current laws and regulations covering investment,
Country performance—country-by-country environmental, social, and governance analysis, allowing for some comparison of progress on ESG-relevant laws and regulations vis-à-vis
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201016
Market Interest
Total Assets Currently Invested in SI
Shari'ah
Compliant Funds
Sovereign wealth
Funds
Private Equity Foreign Investment
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
Actual and Potential Market for Sustainable Investment
ESG Disclosure—existing sustainability reporting by companies, and commitments to
ESG indexes, sustainability research organizations, relevant networks and associations, and civil society organizations in the MENA region are also reviewed as part of a qualitative assessment of
Chapter 4: Market Interest in SI
Analysis of current SI activity by different investment methods in the region, including
Chapter 5
The Appendices
17
Region’s Material ESG Issues
This chapter provides an overview of MENA fundamentals through information on the economic
ESG Material IssuesEnvironment
IssuesSocial Issues
Governance Issues
Water Scarcity
A Competitive, Diverse, Employed, and Respected Workforce
Sustainability
SWF Transparency and Contribution to the Global Economy
Corporate Governance and Disclosure
Region’s Economic Fundamentals
Current Economic Realities
GDP GrowthCombined, MENA produces over $1,500 billion per annum in Gross Domestic Product (GDP), or
8
report (see below) show economic growth, for many, growth over the past two decades has been disappointing9
to growth10 include poor infrastructure (outside the Gulf States), poor deployment of human capital,
are expected to grow at a slower rate than they did between 2000 and 2009, with UAE slowing
will continue to have a bearing on the development of the region, alongside emerging challenges
8
9
10 ibid
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201018
MENA GDP Growth
Country GDP 2009 (estimated)
$ Bn
(PPP)
GDP Growth
2000-2009
CAGR %
Projected GDP
Growth
2009-2015
CAGR %
Population (Total), 2009 (estimated)
Mn
Population Growth
2000-2009
CAGR %
Projected Population
Growth
2009-2015
CAGR %
GDP/ Capita 2009
(estimated)
$
(PPP)
Bahrain 28 8.8 6.3 1.0 5.0 2.0 27,068
Kuwait 135 8.0 6.2 3.5 5.3 2.0 38,304
Oman 74 8.0 6.0 3.0 2.4 3.1 25,110
Qatar 102 13.2 11.1 1.2 8.1 11.5 83,841
Saudi Arabia
593 5.9 6.0 25.5 2.7 1.8 23,221
UAE 179 8.7 5.4 4.9 5.6 2.5 36,537
Jordan 34 8.9 6.7 6.0 2.4 2.3 5,620
Lebanon 55 7.8 6.3 3.9 0.9 1.3 14,226
Egypt 467 7.4 7.5 76.7 2.2 2.0 6,123
Morocco 146 7.5 6.3 31.7 1.2 0.9 4,604
Tunisia 86 7.3 6.9 10.4 1.0 1.0 8,254
Other Developing Economies
Brazil 2013 5.6 6.0 191.5 1.3 0.7 10,514
China 8765 12.6 11.5 1334.7 0.6 0.5 6,567
India 3526 9.8 10.0 1199.1 1.6 1.4 2,941
Source: IMF World Economic Outlook Database, April 2010
19
Water Scarcity
available water per capita was measured at 977 cubic meters in 2001, well below the United Nations 11 By 2023, available water is expected to decrease to 460 cubic
12
in the region are expected to invest more than $400 billion in infrastructure investments (including 13
MENA investors increasingly will need to consider water intensity and dependency metrics as factors in business operational risk, particularly for industries that rely heavily on water, such as
Increasing Population
The MENA region accounts for 6 percent of the global population (300 million people)14, roughlythe same as that of the European Union Two-thirds are below the age of 30, while roughly 27percent are below the age of 15, a proportion that is one of the highest in the world
*Order of countries is from largest in population to lowestSource: Population Reference Bureau, World Population Datasheet, 2009
11
12The 2008 Report of Arab Forum for Environment and Development: Arab Environmental Future Challenge
13
14
Material ESG Issue —Water Scarcity
% of Population Ages < 65% of Population Ages < 15
Egypt
Mor
occo
Saudi
Arabia
Leba
non
Oman
Kuwait
Qatar
Bahra
in
Tunis
ia
Jord
anEUE
40%
35%
30%
25%
20%
15%
10%
5%
0%
33%
38% 37%
19%
29% 29%25%
5% 6%2% 2% 2% 3%
1%1%
7%3%
7%
26%23%
MENA ‘Youth Bulge’
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201020
15
The following graph shows the breakdown of unemployment rates by MENA countries in our
relates to labor-abundant countries versus labor importing states (typically represented by the 16 Thus Kuwait, Qatar and UAE, for example, have low unemployment rates relative to non-
*Number for 2005**Number for 2004 ***Number for 2007Source: Adapted from CIA World Factbook
Building a Competitive, Diverse, Employed and Respected Labor Force
are recognizing this need and opportunity, devoting an average of 5 percent of their GDP to
Contribution of women to economic and social development: The 2005 Arab Human Development
17 Despite legal guarantees for women’s rights to political and economic participation, traditional gender roles often continue to limit women’s employment and
15
16 Report by the Centre for International Private Enterprise, ‘Middle East and North African Reform’
17
Material ESG Issue —Building a Competitive, Diverse, Employed and Respected Labor Force
Unemployment Rates in MENA Countries
16%
14%
12%
10%
8%
6%
4%
2%
0%
15.0%15.0%14.7%
11.7%
9.4%
12.9%
9.2% 9.1%8.7%
3.1%2.2%
0.5%
21
women, their economic participation and career advancement opportunities have yet to match the 18
Labor conditions: In many MENA countries, particularly the GCC, an extremely high percentage
workers has often come under criticism with respect to work conditions, pay, living conditions,
and serious issue that will continue to feature prominently as a highly visible ESG consideration
Economic Sectors Breakdown
Sector Breakdown
Oil and gas fuel much of the economic growth of the MENA region, through the GCC oil-producing economies The GCC generates more than 60 percent of the total GDP for the MENA regionKuwait, Oman, Qatar, Saudi Arabia, and the UAE are 5 of the top 15 oil exporting countries in the world The GCC has more than 37 percent of the world’s proven oil reserves and 23 percent of the world’s proven natural gas reserves 19
In the relatively natural-resources poor Levant region, tourism and banking services dominate due to strong laissez-faire commercial traditions Together, the economies of Lebanon and account for approximately 4 percentof the total GDP for the MENA region
The North African countries—Morocco, Tunisia, and Egypt—relative to other countries in the sample, are the most economies (through strong trade and tourism linkages with Europe and the OECD According the Bank, these countries are also the most integrated into the rest of the global economy and, consequently, have felt the impact of the economic crisis most acutely, especially because they were not cushioned by the rebound in oil prices at the start of 2009 (a situation by the GCC oil-producing countries 20 Together, North Africa accounts for more than 21 percent of the total GDP for the MENA region
18
19
20
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201022
Source: CIA World Fact Book
21
Qatar, along with others, is exploring the potential of “hydroponics”—soil-free agriculture and 22
Climate Change
23 The region is particularly vulnerable given already scarce water resources, high levels of aridity, and the
already facing heavy pressures, and these are expected to intensify as regional temperatures
predicted that with a 3-degree Celsius rise in temperature, maize yields in North Africa could 24
Relevant climate change legislation is beginning to evolve and will likely continue at an
climate change targets while assigning responsibility for climate change performance
21
Centre, Background Paper on Agriculture and Biotechnology in MENA, 2004
22
23The 2008 Report of Arab Forum for Environment and Development: Arab Environmental Future Challenge
24UN FAO—29th FAO Regional Conference for the Near East, background paper, March 2008
Agriculture
Levant North Africa GCC
Industry Services
80%
70%
60%
50%
40%
30%
20%
10%
0%4%
23%
72%
15%
35%
51%55%
44%
1%
MENA Sector Breakdown
Material ESG Issue —Climate Change
23
Moves to Diversify
In MENA, many countries have made investments to diversify their economies and have undertaken 25
in the MENA region include, but are not limited to:
Regional cooperation to enhance complementary economies with regard to labor markets and
countries also are investing heavily in educational infrastructure with the aim of shifting towards
Additionally, the Saudi authorities are building six new economic cities in different regions of the
Economic City, the largest of Saudi Arabia’s economic cities 27
Diversification Toward Sustainability
should consider whether it also will be competitive in a low-carbon, low-water, low-waste,
outside the petroleum industry are the most important, with the proviso that the targeted
This is also an important measure and signal for global SI investors and for the broader
Sachs Sustain, for example, places a large emphasis on industry type when deciding where
high prevalence of “dirty” industry in the MENA region currently makes it far less interesting
petroleum industry and the rate at which they do so will affect future interest from mainstream
challenge associated with this goal is the region’s limited current investment in research
been established to directly support the transition to knowledge-based economies, but to do so with a special emphasis on knowledge and innovation as they relate to environmentally
25
26Middle East Economic Survey, 9 April 2007
27
Material ESG Issue — Diversification Toward Sustainability
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201024
Masdar City (Abu Dhabi):An emerging global clean-technology cluster located in what aims
This $22 billion Free Zone, located about 17 km from downtown Abu Dhabi, will eventually be home to companies, researchers and academics from across the globe, creating an international hub for companies and organizations focused on renewable energy and
Dubai: Enpark: The Energy and Environment Park is a Free Zone spanning more than 8 million
technology companies to operate and a fully-integrated knowledge community that includes programs, services, partnerships and amenities to support the success of environment
Source: www masdar ae; www enpark ae
FDI and Outward Investment
The State of FDI
report’s sample slow by an average of more than 17 percent,28 MENA countries generally are attracting more world FDI, fueled by intraregional foreign investment from the oil-rich countries
29
transfer and diffusion of technology,30 a situation which, if not addressed, will do little to solve the
28
29
30
25
Inward FDI Flows, 2006-2009
Country2006
($ Millions)
2007
($ Millions)
2008
($ Millions)
2009
($ Millions)
% change 2008-2009
Bahrain 2915 1756 1794 257 -86%
Kuwait 122 116 -51 145 145%
Oman 1597 3332 2359 2211 -6%
Qatar 3500 4700 4107 8722 112%
Saudi Arabia 17140 22821 38151 35514 -7%
UAE 12806 14187 13700 4003 -71%
Jordan 3544 2622 2829 2385 -16%
Lebanon 3132 3376 4333 4804 11%
Egypt 10043 11578 9495 6712 -29%
Morocco 2450 2803 2487 1331 -46%
Tunisia 3308 1616 2758 1688 -39%
Other Developing Economies
Brazil 18822 34585 45058 25949 -42%
China 72715 83521 108312 95000 -12%
India 20328 25001 40418 34613 -14%
There are differences between MENA economies with respect to attractiveness for foreign
The reasons attributed to Kuwait’s lack of attractiveness include bureaucracy, stringent regulations, 31 These obstacles must be overcome if
Encouraging more FDI
An important regional development of late is the establishment of Special Economic Zones (SEZs The Bank Group estimates that more than sixty Special Economic Zoneshave been established in GCC countries to attract foreign investors and companies 32 Outside the GCC, new SEZs are also being set up The effect of SEZs on SI is to gauge In purely economic terms,
31Arab Times “Kuwait registers FDI growth in 2009, bucks negative trend,” September, 2010
32
Zones (QIZ), and Special Economic Zones (SEZ)
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201026
for the most part, SEZs have been shown to attract investment and foreign exchange, catalyze employment, and boost development of new technologies and infrastructure In some cases, however, they have led to displacement of indigenous peoples, or resulted in land-use changes with a negative net effect on the environment These zones have also been used to attract investment in clean technologies The success of the latter will likely have a bearing on the overall regional market for SI
Outward Investment
strategically important assets (including high tech, real estate, and aerospace) to sponsoring
33 The Market Interest
Sovereign Wealth Fund Transparency and Contribution to the Global Economy
implications and heightened potential for meddling in corporate governance for political 34
The Financial Times reported that the
35
ESG transparency from the companies in which they are investing, several of which already
Stabilization of the banking systems: Despite limited exposure to the subprime sector,
Advancement of local development: There is a window of opportunity, as well as newly developed and sophisticated national economic agendas, to advance local economies and bridge the development gap as the rest of the world suffers through a recession, particularly as global capital markets currently offer poor or risky investment
portfolio companies as a means of demonstrating their contribution to national sustainable
33
on Foreign Relations, Rachel Ziemba, RGE Monitor, December 2007
34
35
Material ESG Issue — Sovereign Wealth Fund Transparency and Contribution to the Global Economy
27
MENA Securities Markets
MENA Securities Markets
Stock Market
Number of Listed Companies
Stock Market Capitalization ($ millions) Market
Capitalization % Change, 2004-20102003 2004 2010 2003 2004 2010
Bahrain—Bahrain Stock Exchange 44 45 49 9,702 13,513 22,069 63%
Kuwait—Kuwait Stock Exchange 108 125 239 59,528 73,581 118,107 61%
Oman—Muscat Securities Market 141 123 125 7,246 9,318 17,603 89%
Qatar—Doha Securities Market 28 30 42 26,702 40,435 110,092 172%
Saudi Arabia—Saudi Stock Market 70 73 146 157,306 306,256 337,191 10%
UAE—Dubai Financial Market; Abu Dhabi Securities Market
43 53 147 44,647 90,581 130,353 44%
Jordan—Amman Stock Exchange 161 192 275 10,963 18,383 29,270 59%
Lebanon—Beirut Stock Exchange 14 16 26 1,503 2,331 14,594 526%
Egypt—Cairo Stock Exchange Market 967 792 220 27,847 38,077 75,212 98%
Morocco—Casablanca Stock Exchange 52 53 73 13,050 25,175 60,468 140%
Tunisia—Tunis Stock Exchange 45 44 55 2,440 2,574 10,828 321%
Source: Zawya.com, September 2010 and OECD - Ownership Structures in MENA Countries: Listed Companies, State-Owned, Family Enterprises and Some Policy Implications, 2004
Private Sector Make-up
An important MENA consideration when examining the securities markets is not which companies are included, but which ones are excluded, vis-à-vis their impact on the national economies Many of the largest companies in Bahrain, Lebanon, Egypt, Kuwait, Morocco, Oman, Saudi Arabia, and the UAE, are not listed on the stock exchanges at all The dominance of state-owned enterprises (SOEs), family-owned enterprises (FOEs), and private small and medium sized enterprises (SMEs) distinguish the business environment of MENA from that of many markets This structure requires corporate governance principles, as well as models and disclosure systems that include, but extend beyond, securities markets
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201028
Corporate Governance and Disclosure
transparency and disclosure issues in the MENA region are mostly focused on governance, there is growing awareness among listed companies that the next phase of transparency will
Corporate governance has not seen the same volume of gains as State Owned Enterprises
growing appreciation of environmental and social issues within national sustainable
same time, many FOEs are taking their own initiative to enhance corporate governance—some in preparation for initial public offerings (IPOs), some to assist in transitioning the business from one generation of family to the next, and some because they believe in
Despite these advancements, ESG reporting by publicly listed companies, SOEs, and FOEs in MENA is still in its infancy and for the most part absent, even as sustainability awareness
These regional economic fundamentals, combined with the highlighted material environmental, social and governance (ESG) issues, form the backdrop to our examination of SI activity and
Material ESG Issue — Corporate Governance and Disclosure
29
amount of corporate ESG disclosure in the region, this chapter evaluates the degree to which the
The regulatory environment is assessed through a high level review of existing investment laws, corporate governance regulations, environmental regulations, and laws governing social
the operating environment as it relates to ESG conditions, while also allowing for some comparison
ESG disclosure practices in the region are then assessed by reviewing the degree of corporate sustainability reporting and corporate commitment to the UN Global Compact, as well as the extent to which MENA asset owners and managers have committed to internationally voluntary standards
among countries and sub-regions, what emerges is a region that is making progress in areas of investment and ESG regulations, but with national ESG performance at best only beginning to
Market Preparedness Framework
Individual profiles for the 11 markets assessed in this report are provided in the Appendix.
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201030
Investment and ESG Regulations and Country Performance
various regulatory dimensions were assessed to determine the level of support they provide for SI
(a) Investment Laws and Regulations (b) Corporate Governance Laws and Regulations (c) Environmental Laws and Regulations (d) Social Laws and Regulations
Following the assessment of each country’s investment and ESG regulations, each of the above areas also was assessed from the perspective of country performance (with the exception of
example, for the assessment of environmental laws and regulations in the region, two indices Stringency of
Environmental Regulations, and Enforcement of Environmental Regulations. In order to measure national environmental performance, the Environmental Performance Index
score for Market Preparedness, of which the four regulatory subcomponents (Investment, Environment,
Indices Used in the Quantitative Assessment of the MENA Investment and ESG Regulations
Dimensions of Regulatory
EnvironmentIndices Used for Measuring Laws and Regulations
Investment Laws and RegulationsBusiness Indicator Index
Source: eStandards Forum 2009
Corporate Governance
Laws and Regulations
Extent of Director Liability Index
Source: World Bank, Doing Business - Investor Protection Index 2009
Extent of Disclosure Index
Source: World Bank, Doing Business - Investor Protection Index 2009
Strength of Auditing and Accounting Standards
Source: WEF Global Competitiveness Report 2010-2011
Environmental
Laws and Regulations
Stringency of Environmental Regulations
Source: WEF Travel and Tourism Competitiveness Report, 2009
Enforcement of Environmental Regulations
Source: WEF Travel and Tourism Competitiveness Report, 2009
Social Laws and Regulations
Source: International Labor Organization, 2010
Gender Empowerment Measures
Source: UNDP Human Development Indices, 2009
Rigidity of Employment
Source: World Bank, Doing Business, 2010
31
Indices Used in the Quantitative Assessment of the MENA National ESG Performance
Dimensions of
Regulatory
Environment
Indices Used for Measuring ESG Performance
Corporate Governance Laws and Regulations
Source: WEF Global Competitiveness Report 2010-2011
Ethical Behavior of Firms
Source: WEF Global Competitiveness Report 2010-2011
Corruption Perception Index (CPI)
Source: Transparency International, CPI 2009
Environmental Laws and Regulations
Environmental Performance Index
Source: Global Environmental Index 2010
Social Laws and Regulations
Global Gender Gap Index
Source: WEF Global Gender Gap Report, 2009
Hiring and Firing Practices
Source: WEF Global Competitiveness Report 2010-2011
Human Rights Country Ranking
Source: Country Indicators for Foreign Policy (CIFP), 2007
Overall, in recent years the MENA region has witnessed significant
progress in government engagement in international efforts relating to
corporate governance, the environment and social issues such as labor.
Growing interest by MENA countries in ESG issues has contributed to
some countries in the region publishing multi-decade visions in which
sustainable development is integrated as a guiding principle into na-
tional-level strategic plans. Examples include Qatar, Bahrain, and Abu
Dhabi. In general, ESG regulatory strategies are pursued nationally
with limited evident regional coordination to date. As such, strategies
remain relatively inconsistent across the region.
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201032
The following subsections attempt to address the four subcomponents of the regulatory environment and national ESG performance in more detail, and provide the quantitative analysis for each
Investment Laws and Regulations
Investment Regulations in the MENA Region
countries has been increasing steadily over the last few years36
37,
of these reforms, all countries in the sample, with the exception of Lebanon, are either at standard, or have initiated reforms to comply with international investment standards, as measured by the
Source: World Bank MENA Development Report, 2009
Despite recent improvements the region’s business environment through regulatory reforms, there
38 showed that 72 percent of companies in the region viewed corruption and anti-fraud regulations and laws to be
Lebanon complained that regulations are inconsistently interpreted, and as such, the country has been
36
37
38 th
The assessment of investment laws and regulations is based on the eStandards Forum (www.estandardsforum.org) Index of the Financial Standards Forum, which assesses the investment laws and regulations of each country based on their compliance with international best practices. The eStandards Forum provides country rankings using 12 key business indicators.
3
2.5
2
1.5
1
0.5
0
The Number of Regulatory Rrforms Has Increased Recentlyin MENA Countries
(Average number of regulatory reforms per country, as measured by the Doing Business report)
33
Source: World Bank enterprise surveys, various years
Investment Incentives in the MENA Region
In addition to investment regulations, investment incentives are also provided throughout the region,
example: Bahrain offers the exemption of minimum capital requirements for foreign invested
Egypt provides guarantees against nationalization expropriation and price controls—both as
Morocco offers a 20 percent investment allowance and capital gains exclusion from 25 to 100
39
39
Stocktaking
% of respondents disagreeing with ‘interpretations of regulations are consistent andpredictable’
Lebanon Morocco Algeria Jordan yamenRepublic
SaudiArabia
West Bankand Gaza
70%
60%
50%
40%
30%
20%
10%
0%
67% 66%
60% 58%
42% 41%
22%
Large Proportions of Investors Complain That the Regulations areInterpreted Inconsistently and Unpredictably
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201034
UAE—Regional Leader
The UAE government welcomes foreign investment and provides tax incentives and low tax
contained—the UAE is ranked 30th out of 180 countries in Transparency International’s
Impact of Existing Investment Regulations on SI
The region’s investment regulatory environment has improved over the years through increased
The impact of investment regulations on SI depends upon several variables, including the ease of investment, clear regulatory frameworks, type of investment incentives provided, level of foreign
this is best illustrated where governments are providing preferential electricity consumption rates
example in cases where foreign investment is encouraged, the transfer of knowledge regarding best
Overall it is difficult to draw a clear correlation between investment
regulations and SI, yet the analysis attempts to quantify this relation
using the business indicator index, an index provided by the eStan-
dards Forum that assesses the investment laws and regulations of
each country based on their compliance with international best prac-
tices. This index demonstrates that the GCC countries, with the excep-
tion of Saudi Arabia, exhibit the highest scores as relates to investment
regulation
35
Business Indicator Index Scores—Country Comparison, 2009
Country Business Indicator Index
Score (out of 12)
Business Indicator
Index Score
Ranking (out of 81 countries assessed)
Compliance Level
UAE 9.9 82.5% 37 At Standard
Bahrain 9.7 80.4% 41 At Standard
Oman 9.4 78.3% 43 At Standard
Qatar 8.7 72.1% 50 In Progress
Jordan 8.5 70.8% 52 In Progress
Kuwait 8.4 70.0% 55 In Progress
Egypt 8.2 67.9% 56 In Progress
Brazil 7.5 62.5% 64 In Progress
Morocco 7.4 61.7% 65 In Progress
Tunisia 7.4 61.7% 65 In Progress
Saudi Arabia
6.9 57.5% 70 In Progress
Lebanon 5.6 46.4% 81 Below Standard
China 5.3 44.2% 82 Below Standard
India 5.2 43.3% 83 Below Standard
Source: eStandards Forum—Business Indicator Index, 2009
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201036
Market Preparedness – Investment Regulations
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
83% 80% 78%72% 71% 70% 68%
62% 62% 62%58%
46% 44% 44%
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
Investment Regulations Score in MENA
37
Corporate Governance Laws and Regulations and Country Performance
Corporate Governance Regulations in the MENA Region
In recent years, regulatory bodies and companies in MENA region countries have made substantial
Bahrain announced the launch of its Code of Governance, which is expected to take effect from
40
List of Existing Corporate Governance Codes in the MENA region
Country Code Code Type Authority
BahrainCorporate Governance Code of Kingdom of Bahrain
For Listed Companies
Ministry of Industry and Commerce
Egypt
Code for Corporate Governance for Private Companies in Egypt
For Listed Companies
Egyptian Institute of Directors
Code for Corporate Governance for State Owned Enterprises in Egypt
For State Owned Enterprises
Egyptian Institute of Directors
Jordan Code for Listed Companies For Listed Companies
Jordan Securities Commission
LebanonCorporate Governance Code for Small and Medium Enterprises
For SMEsLebanese Transparency Association (LTA)
Saudi Arabia
Corporate Governance Regulations in the Kingdom of Saudi Arabia
For Listed Companies
Capital Market Authority
Tunisia Guide de Bonnes Pratiques de Gouvernance des Entreprises Tunisiennes
Code for Listed Companies
L’Institut Arabe des Chefs d’Entreprises
United Arab Emirates
Corporate Governance Code for Joint-Stock Companies
For Joint-Stock Companies
Emirates Securities & Commodities Authority (ESCA)
Abu Dhabi Governance Code For Listed Companies
For Listed Companies
Abu Dhabi Securities Market
Abu Dhabi Governance Rules for Listed Companies
Listed Companies
Abu Dhabi Securities Market
Source: Global Corporate Governance Forum (GCGF), 2008, Corporate Governance: Better Companies, Better Stories: European Corporate Governance Institute, http://www.ecgi.org/.
40Compliance Insider May, 2010, Corporate Governance in the Middle East: A Changing Landscape
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201038
governments are striving to meet international governance standards, existing rules are not
Three indices were used to measure the region’s governance regulations: the ‘Director Liability
Doing Business Index, and the ‘Strength of Auditing and Accounting Standards Index’ from the
Director Liability Index, Saudi Arabia sits at the top with a score of eight (out of 10), with Kuwait
12th globally, while Morocco, the lowest ranking country from the MENA region, ranks 100th out
As the results show in the table below, it is clear that scores on various indices measuring corporate
score in the region of one in the Director Liability Index, but amongst the highest scores in the
Overall, Saudi Arabia, Kuwait and Oman rank 1st, 2nd and 3rd in terms
of corporate governance laws and regulations in the region.
Corporate Governance Laws and Regulations by Country
Country
Director Liability Score
(out of 10)
Extent of Disclosure
Score (out of 10)
Strength of Auditing and Accounting Standards
Corporate Governance Regulations
Score
Saudi Arabia 8 9 5.36 82.2%
Kuwait 7 7 4.75 69.3%
Oman 5 8 5.29 68.5%
Bahrain 4 8 5.65 66.9%
Brazil 7 6 4.76 66.0%
Qatar 6 5 5.85 64.5%
United Arab Emirates
7 4 5.36 62.2%
39
Corporate Governance Laws and Regulations by Country
Country
Director Liability Score
(out of 10)
Extent of Disclosure
Score (out of 10)
Strength of Auditing and Accounting Standards
Corporate Governance Regulations
Score
India 4 7 5.13 61.1%
Egypt 3 8 4.83 59.7%
China 1 10 4.79 59.5%
Tunisia 5 5 4.98 57.0%
Jordan 4 5 5.31 55.3%
Lebanon 1 9 4.57 55.1%
Morocco 2 6 4.16 46.5%
Director Liability Index Source: World Bank, Doing Business, Investor Protection Index, 2009 Extent of Disclosure Index Source: World Bank, Doing Business, Investor Protection Index, 2009Strength of Auditing and Accounting Standards Source: WEF Global Competitiveness Report 2010-2011
Corporate Governance Performance in the MENA Region
of Corporate Boards Index and the Ethical Behavior of Firms Index—both drawn from the
which measures the amount of supervision exerted by investors and boards of directors in corporate th, Bahrain ranks 24th and Saudi Arabia ranks 26th
th globally,
The UAE and Oman hold the highest scores in the Middle East for the Ethical Behavior of Firms Index which measures the corporate ethics of companies in one country relative to other countries
nd, with Oman following suit with a rank of 23rd
Behavior in the region at 123rd
Qatar and the UAE seem to have minimal perceived corruption in their respective public-sectors,
Country performance in corporate governance is measured using three indices:The Efficacy of Corporate Boards Index and the Ethical Behavior of Firms Index, both of which are provided by the World Economic Forum, and Transparency International’s Corruption Perception Index.
Source:
(1) WEF Global
Competitiveness Report
2010-2011 (2)http://www.
transparency.org/policy_
research/surveys_indices/
cpi/2009/cpi_2009_table
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201040
Country Performance in Governance Related Indices
CountryCorporate Boards
Ethical Behavior of
Firms
Corruption Perception Index 2009
Corporate Governance Performance
Score
United Arab Emirates
4.80 5.41 6.50 70.3%
Oman 4.95 5.40 5.50 67.6%
Bahrain 5.00 5.33 5.10 66.2%
Qatar 3.39 5.23 7.00 64.4%
Saudi Arabia
5.00 5.16 4.30 62.7%
Tunisia 4.91 5.18 4.20 62.0%
Jordan 4.42 4.53 5.00 59.3%
Kuwait 4.09 4.43 4.10 54.2%
China 4.40 4.18 3.60 52.9%
India 4.47 3.86 3.40 51.0%
Morocco 4.62 3.77 3.30 50.9%
Brazil 4.55 3.55 3.70 50.9%
Egypt 4.42 4.13 2.80 50.0%
Lebanon 4.27 3.17 2.50 43.8%
Ethical Behavior of Firms Source: WEF Global Competitiveness Report 2010-2011
Corruption Perception Index Source: Transparency International http www transparency org policyresearch surveys indices cpi 2009 cpi 2009 table
41
Impact of Existing Governance Regulations and Country Performance on SI
Corporate governance plays a vital role in supporting economic development as it:
growth,
(3) Enhances the operational performance,
41
good governance increasingly is being seen as a means to improve the performance and stability
practices, clarifying management and board responsibilities, and monitoring director performance,
42
The disparity between country scoring in Corporate Governance Regulations and the scoring
is still on a development path in regards to its governance rules with some countries like Oman and Saudi Arabia being in advanced stages, while other countries in North Africa and the Levant such as
all countries in the GCC plus Tunisia rank higher than Brazil in Corporate Governance Regulations
41
42
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201042
Corporate Governance Regulations and Performance – by Country
Country
Corporate Governance Regulations
Score
Corporate Governance Performance
Score
Weighted Corporate Governance
Regulations and Performance Score
Saudi Arabia 82.2% 62.7% 72%
Oman 68.5% 67.6% 68%
Bahrain 66.9% 66.2% 67%
UAE 62.2% 70.3% 66%
Qatar 64.5% 64.4% 64%
Kuwait 69.3% 54.2% 62%
Tunisia 57.0% 62.0% 60%
Brazil 66.0% 50.9% 58%
Jordan 55.3% 59.3% 57%
China 59.5% 52.9% 56%
India 61.1% 51.0% 56%
Egypt 59.7% 50.0% 55%
Lebanon 55.1% 43.8% 49%
Morocco 46.5% 50.9% 49%
Source: Research and analysis conducted for this report
Market Preparedness – Governance Regulations and Performance
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
43
Environmental Laws and Regulations and Country Performance
Environmental Regulations in MENA
According to the Arab Forum for Environment and Development (AFED),43 MENA legislation on environment is an integrated legislative system which aims to ensure environmental protection
Various cabinet portfolios for the environment have been established in the MENA region, as
43Source: Arab Environment: Future Challenges 2008, AFED
80%
70%
60%
50%
40%
30%
20%
10%
0%
72%69% 68% 67% 66%
62% 60% 58% 57% 56% 56% 55%49% 49%
Corporate Governance Regulations and Performance Scores in MENA
The assessment of environmental laws is based on country scores on two indices: The Stringency of Environmental Regulations Index and the Enforcement of Environmental Regulations Index both provided by the World Economic Forum’s Travel and Tourism Competitiveness Report 2009.
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201044
List of Environmental Cabinets/Agencies/Departments in the MENA region
Country Institution
BahrainMinistry of Housing, Municipalities and Environment Department of Environmental Affairs
EgyptMinistry of State for Environmental AffairsEgyptian Environmental Affairs Agency
Jordan Ministry of Environment
Kuwait Environment Public Authority
Lebanon Ministry of Environment
Oman Ministry of Environment and Climate Affairs
Morocco Departement du L’environnement
Qatar Ministry of Environment
Saudi Arabia Presidency of Meteorology and Environment
Tunisia Ministry of Environment and Sustainable Development
UAEMinistry of EnvironmentEnvironment Agency Abu DhabiEnvironment Department Dubai
Environmental legislation in the MENA region is generally based on mandating assessment of
legislation conditionally and explicitly indicates that this assessment should examine all negative
According to the AFED report, most MENA laws on environment include provisions ensuring protection of water sources against pollution and regulating water consumption patterns to
life and biodiversity, and protection of marine environments against pollution caused by maritime
MENA environmental legislation, as a whole, is observed to not yet recognize and incorporate the practicality of economic policy instruments and their effectiveness in ensuring environmental
mandated compliance with environment protection systems and measurements as a prerequisite for
loans from lending agencies must include an obligation that the borrower commit to environmental
45
Environmental protection laws in the MENA region
Country Law pertaining to environmental protection
Bahrain Law No. 21/1996 on Environment Protection in Bahrain.
Egypt Law No. 4/1994 on Environment Protection in Egypt.
Jordan Law No. 52/2006 on Environment Protection in Jordan.
KuwaitEnvironment Protection in Kuwait.
LebanonLaw No. 444/2002 on 29/7/2002 on Environment Protection in Lebanon.
Morocco
Law No. 11-3 relating to Environment Protection and Reclamation issued by Royal Decree no. 50-3-1 on 15 Rabei Awal 1424 Hij corresponding to 12 May 2003 in Morocco.
Oman Law No. 114/2001 on Environment Protection in Oman.
Qatar Law No. 30/ 2002 on Environment Management in Qatar.
Saudi ArabiaRepublican Decree no.34 on 28/7/1422 Hij on the Environment System in Saudi Arabia.
Tunisia
Law No. 91/1988 on Establishment of a National Agency for
115/1992 and 14/2001 and further laws pertinent to different components of the environment. In addition to passing.
UAELaw No. 24/1999 on Environment Protection and Development in the United Arab Emirates.
Source: Publically available information including news releases, and regulatory bodies’ websites.
In addition to the country laws pertaining to environmental protection in MENA, many MENA
of the Kyoto Protocol to the Framework Convention on Climate Change by Kuwait and Egypt in 2005, the signing of the Stockholm Convention on Persistent Organic Pollutants by Tunisia and
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201046
Source: WEF Travel and Tourism Competitiveness Report 2009
202220181614121086420
20 19 1918 18
1716 16
13
21
Number of Signed International Environmental Treaties (out of 25)
Overall, environmental regulations in the MENA region are developing and changing at an accelerated rate, and, although a few common features are shared, the regulations are mostly fragmented througof regulation stringency range between 44 for Saudi Arabia, to 71 for Tunisia with the high score representing best practices.44 Generally, environmental regulations in the MENA region are characterized by lax enforcement
in both the Stringency of Environmental Regulations Index and the Level of Enforcement of Environmental Regulations, with respective global rankings of 19th and 16th
the exception of Egypt, Kuwait and Morocco, all MENA countries score above the global means
44
Overall, environmental regulations in the MENA region are developing and changing at an accelerated rate, and, although a few common features are shared, the regulations are mostly fragmented throughout the region. This fragmentation is also observed in relation to the stringency of these regulations; according to one survey, country scores in terms of regulation stringency range between 44 for Saudi Arabia, to 71 for Tunisia with the high score representing best practices.44
47
Level of Stringency and Enforcement of Environmental Regulations in the MENA Region
CountryStringency of
Environmental Regulations
Level of Enforcement of Environmental
Regulations
Environmental Regulations
Score
Oman 5.3 5.2 75.0%
Qatar 5.1 5.1 72.9%
Tunisia 4.9 4.9 70.0%
UAE 4.8 4.8 68.6%
Brazil 4.5 4.0 60.7%
Jordan 4.2 4.1 59.3%
Lebanon* 4.2 4.1 59.3%
Saudi Arabia 4.0 4.1 57.9%
Bahrain 4.2 3.9 57.9%
India 4.2 3.8 57.1%
Global Mean 4.0 3.8 55.7%
China 3.7 3.7 52.9%
Morocco 3.3 3.3 47.1%
Kuwait 3.1 3.0 43.6%
Egypt 3.1 2.7 41.4%
*No data was available for Lebanon, as such, averaged regional scores were substitutedSource: WEF Travel and Tourism Competitiveness Report 2009
Environmental Performance in MENA
The global Environmental Performance Index (EPI) indicates that all countries in the sample, with
North Africa’s stronger performance relative to other MENA countries is counterintuitive when observing the country scoring in the stringency and enforcement of environmental regulations indexes, which found that North African countries, with the exception of Tunisia, were among the
to others in the region are the country’s low burden of environmental disease and low levels of
45
45
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201048
Environmental Performance Index Scores – Country Comparison, 2010
Country2010 Environmental Performance Index Score (out of 100)
Global Rank (out of 163)
Income Group Average
Oman 65.6 52 56.2
Qatar 63.4 62 65.7
Tunisia 62.0 68 58.7
UAE 60.6 74 65.7
Brazil 57.9 90 65.7
China 56.1 97 58.7
India 55.3 99 64.8
Jordan 54.1 104 -
Lebanon 51.1 113 67.1
Saudi Arabia 49.0 121 58.7
Bahrain 48.9 122 67.1
Morocco 48.3 123 56.2
Kuwait 45.9 131 64.8
Egypt 42.0 145 67.1
Source: Environmental Performance Index, 2010
Impact of Existing Environmental Laws and Country Performance on SI
Regulations that aim to protect the local environment of a country represent strong drivers to
environmental regulation on investment is dependent upon the stringency and the enforcement
might correlate positive environmental performance with an increased amount of business activity
49
Environmental Regulations and Performance – by Country
CountryEnvironmental
Regulations Score
Environmental Performance
Score
Weighted Environmental
Regulations and Performance Score
Oman 75.0% 65.6% 70.3%
Qatar 72.9% 63.4% 68.2%
Tunisia 70.0% 62.0% 66.0%
UAE 68.6% 60.6% 64.6%
Brazil 60.7% 57.9% 59.3%
Jordan 59.3% 54.1% 56.7%
India 57.1% 55.3% 56.2%
Lebanon 59.3% 51.1% 55.2%
China 52.9% 56.1% 54.5%
Saudi Arabia 57.9% 49.0% 53.5%
Bahrain 57.9% 48.9% 53.4%
Morocco 47.1% 48.3% 47.7%
Kuwait 43.6% 45.9% 44.8%
Egypt 41.4% 42.0% 41.7%
Source: Research and analysis conducted for this report
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201050
Market Preparedness – Environmental Regulations and Performance
80%
70%
60%
50%
40%
30%
20%
10%
0%
70% 68% 67% 65%59% 57% 56% 55% 55% 54% 53%
48%45%
42%
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
Environmental Regulations and Performance Score in MENA
51
Social-Related Laws and Regulations and Country Performance
Social Regulations in MENA
Despite the similarity in some legislative frameworks, the MENA region represents a blend of countries ranging in size, social and political structure, economic realities, and regulatory
Gender Equality Regulations in MENA
One such issue where regulations vary greatly from one MENA country to another is gender
the MENA region, the biggest steps were taken in the areas of employment, education, and political
In the UNDP 2009 Human Development Report, the UAE and Bahrain ranked highest in the region for gender empowerment, coming in at 25th and 46th
and Saudi Arabia ranked lowest in the MENA region, and are among the lowest-ranking countries
The assessments of social laws and regulations in MENA are based on the country scores on indices related to Gender Equality and Labor Rights.
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201052
Gender Empowerment by Country in MENA
CountryGender Empowerment
Measures (GEM)
Global Rank in GEMs (out of 109 ranked countries of
a total 192)
United Arab Emirates
69.1% 25
Bahrain 60.5% 46
China 53.3% 72
Brazil 50.4% 82
Oman 45.3% 87
Qatar 44.5% 88
Jordan* 44.3% -
Kuwait* 44.3% -
Lebanon* 44.3% -
Tunisia* 44.3% -
Morocco 31.8% 104
Saudi Arabia 29.9% 106
Egypt 28.7% 107
India** N/A N/A
*No data was available for Jordan, Kuwait, Lebanon and Tunisia; as such, averaged regional scores were substituted**No data was available for IndiaSource: UN Data Website Available at: http://data.un.org/DocumentData.aspx?q=gender+empowerment&id=182
Labor Regulations in MENA
To determine the level of labor-related regulations in the region, two indices were used: the International
53
The labor conventions chosen pertain to the elimination of forced labor, allowing collective
conventions are shown in the table below:
of Basic Worker’s Convention Index
Conventions
C29 – Forced Labor Convention
C87 – Freedom of Association and Protection of to Organize Convention
C98 – Right to Organize and Collective Bargaining Convention
C100 – Equal Remuneration Convention
C105 – Abolition of Forced Labor
C111 – Discrimination (Employment and Occupation) Convention
C138 – Minimum Age Convention
C182 – Worst Forms of Child Labor Convention
Source: International Labor Organization Website
46
A second measure of labor regulations in the MENA region is the Rigidity of Employment Index
measure: Kuwait ranks in the top 10 countries in the world for providing easy hiring, employment,
46
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201054
Labor Laws and Regulations by Country in the MENA Region
Country Worker’s Convention (out of 8)
Rigidity of Employment (out of 100)
Labor Regulations
Score
Kuwait 7 0 94%
Egypt 8 27 87%
United Arab Emirates
6 7 84%
Jordan 7 24 82%
Lebanon 7 25 81%
Tunisia 8 40 80%
Saudi Arabia 5 13 75%
Qatar 5 13 75%
Brazil 7 46 71%
Bahrain 4 10 70%
Oman 4 13 69%
Morocco 7 60 64%
China 4 31 60%
India 4 30 60%
Source of Rigidity of Employment Index: World Bank Doing Business 2010 Report
standards, The League of Arab States signed the Arab Charter for Human Rights in 2004, and
efforts to secure memberships in international human rights organizations have been undertaken
overall score of 77 percent, followed by Kuwait and Bahrain with scores of 69 percent and 65
55
Social Regulations Score by Country in MENA
CountryGender Equality
Regulations ScoreLabor Regulations
ScoreSocial
Regulations Score
United Arab Emirates
69.1% 84% 77%
Kuwait* 44.3% 94% 69%
Bahrain 60.5% 70% 65%
Jordan* 44.3% 82% 63%
Lebanon* 44.3% 81% 63%
Tunisia* 44.3% 80% 62%
Brazil 50.4% 71% 61%
Qatar 44.5% 75% 60%
India N/A 60% 60%
Egypt 28.7% 87% 58%
Oman 45.3% 69% 57%
China 53.3% 60% 57%
Saudi Arabia 29.9% 75% 52%
Morocco 31.8% 64% 48%
Gender Equality Regulations Source: Gender Empowerment Measures, UNDP*Gender Equality Regulations Scores were unavailable for Jordan, Kuwait, Lebanon and Tunisia; as such, a regional average was used as a substitute
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201056
Social Performance in MENA
In terms of social performance, Qatar, UAE and Oman seem to perform at the highest levels, with
Social Performance Score by Country in MENA
CountryGender
Gap Index (out of 1)
Hiring and Firing Practices Index (out of 7)
Human Rights Rankings (out of 10)
Social Performance
Score
Qatar 0.59 4.85 6.68 53.8%
India 0.62 3.69 5.33 53.6%
United Arab Emirates
0.62 4.70 6.85 53.5%
Oman 0.59 4.37 6.16 53.4%
Brazil 0.67 2.80 4.67 53.4%
Kuwait 0.64 3.97 6.33 52.3%
Lebanon 0.60 4.19 6.85 50.6%
Tunisia 0.62 4.20 7.05 50.6%
Morocco 0.59 3.95 6.69 49.6%
Bahrain 0.61 3.49 6.61 48.4%
Jordan 0.62 3.52 6.70 48.4%
China 0.69 4.07 8.39 47.8%
Saudi Arabia
0.57 4.60 7.90 47.7%
Egypt 0.59 3.86 7.47 46.3%
Gender Gap Index Source: WEF 2009 The Global Gender Gap ReportHiring and Firing Practices Index Source: WEF Global Competitiveness Report 2010-2011Human Rights Index Source: Carleton University Country Indicators for Foreign Policy, 2007
Impact of Existing Social Regulations and Country Performance on SI
The social development of a country and the process of safeguarding citizens’ rights by law are the building blocks for fostering socially responsible behavior in the business environment, and
environment, both to support sustainable businesses and promote the integration of sustainability
equality, and labor standards, as well as efforts to gauge the effect these measures have on the overall social performance of MENA countries, are potential accelerating factors for the take-up
57
The UAE, Kuwait, and Bahrain lead the region in overall social regulation and social performance
Social Regulations and Performance Scores—Country Comparison
CountrySocial
Regulations Score
Social Performance
Score
Weighted Social Regulation and Performance
Score
United Arab Emirates 76.6% 53.5% 65%
Kuwait 69.0% 52.3% 61%
Bahrain 65.3% 48.4% 57%
Brazil 60.6% 53.4% 57%
Qatar 59.6% 53.8% 57%
Lebanon 62.8% 50.6% 57%
Jordan 63.0% 48.4% 56%
Tunisia 62.1% 50.6% 56%
India 55.9% 53.6% 55%
Oman 56.9% 53.4% 55%
China 56.4% 47.8% 52.1%
Egypt 57.6% 46.3% 52%
Saudi Arabia 52.3% 47.7% 50%
Morocco 47.8% 49.6% 49%
Source: Research and analysis conducted for this report
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201058
Market Preparedness – Social Regulations and Performance
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
70%
65%
60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
65%
61%57% 57% 57% 57% 56% 56% 55% 55%
52% 52%50% 49%
Social Regulations and Performance Scores in MENA
59
Overall Analysis of MENA Investment, ESG-Related Regulations and Country Performance
Overall, investment and ESG-related regulations in MENA have made important strides in recent years, although many areas are still in the very early stages of development. Research also suggests that country performance has not yet appreciably responded to the regulatory stimulus or other stimuli that may be present in the markets. On the whole, country-level ESG performance is lagging what is mandated in ESG regulations.
Country
Weighted Average for “Investment
Laws and Regulations”
Score
Weighted Average for “Corporate Governance Regulations
and Performance”
Score
Weighted Average for
“Environmental Regulations and
Performance” Score
Weighted Average
for “Social Regulations
and Performance”
Score
Total “Investment
and ESG Regulatory
Environment + Country
Performance” Scores
United Arab Emirates
83% 66% 65% 65% 70%
Oman 78% 68% 70% 55% 68%
Qatar 72% 64% 68% 57% 65%
Bahrain 80% 67% 53% 57% 64%
Tunisia 62% 60% 66% 56% 61%
Jordan 71% 57% 57% 56% 60%
Kuwait 70% 62% 45% 61% 59%
Brazil 63% 58% 59% 57% 59%
Saudi Arabia 58% 72% 54% 50% 58%
Egypt 68% 55% 42% 52% 54%
India 43% 56% 56% 55% 53%
Lebanon 46% 49% 55% 57% 52%
Morocco 62% 49% 48% 49% 52%
China 44% 56% 55% 52% 52%
Source: Research and analysis conducted for this report
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201060
Market Preparedness – Investment and ESG Regulations and Country Performance
75%
70%
65%
60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
70%68%
65%64%61% 60% 59% 59% 58%
54% 53% 52% 52% 52%
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
CInvestment and ESG Regulatory Environment + Country Performance Scores
61
ESG Disclosure
In addition to reviewing ESG regulations and country performance, the second main element of the quantitative assessment of MENA SI Market Preparedness is a review of:
of the UN Principles for Responsible Investment (PRI), the UN Environmental
Sustainability Reporting and Non-Financial Information Disclosure
Disclosure of ESG performance is essential to SI activity, in that it is the primary source
SI investors but investors and stakeholders in general: according to a survey conducted 47 69 percent of 137 institutional investors in charge of some of the
A survey conducted by Hawkamah in 200848 on disclosure practices in banks and listed
with disclosure of corporate governance-related information, as well as charters and by-
The Hawkamah survey also assessed the barriers preventing the adoption of good
barriers included: lack of economic incentive, fear of unfair competition, security issues,
A few international efforts, such as the Global Reporting Initiative and the UN’s Global
uptake of these international ESG disclosure mechanisms in the region is still limited, as
47
48
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201062
The Global Reporting Initiative
the UAE) published sustainability reports in accordance with the GRI guidelines, compared to
GRI Sustainability Reports in MENA
Countries 2007 2008 2009
UAE 2 2 6
Saudi Arabia 0 1 2
Egypt 0 1 1
Jordan 1 1 1
Regional Total: 3 5 10
Other Developing Economies
Brazil 34 69 67
China 8 16 52
India 6 20 20
Source: Number of published reports – GRI report list, Globalreporting.org
The Corporate Register
In order to expand the review of companies in the region that are reporting on ESG issues, the
The GRI is an international standard for sustainability reporting, whereby an organization publicly communicates its ESG performance. GRI seeks to make sustainability reporting by all organizations as routine as, and comparable to, financial reporting.
Source: http://
globalreporting.org
The Corporate Register is a primary reference point for Corporate Responsibility (CR) reports and resources worldwide, provided entirely online. The site contains more than 28,000 reports from nearly 7,000 different companies from around the world.
Source: www.
corporateregister.com
63
United Nations Global Compact
There are 148 active signatories to the UN Global Compact from the MENA region, eight of which
below, especially considering that more than 80 percent of the participating MENA companies are
Participating Companies in UN Global Compact
Country Number of Participants
Tunisia 34
UAE 33
Egypt 32
Jordan 23
Morocco 12
Kuwait 5
Qatar 4
Lebanon 4
Oman 1
Regional Total: 148
Other Developing Economies
Brazil 186
China 102
India 96
Source: unglobalcompact.org
Egyptian Corporate Responsibility Index (S&P EGX ESG Index)
The Egyptian Institute of Directors (EIoD), in close consultation with Standard & Poor’s and
Evaluation for this index was based on data that companies make available to the public, whether on their websites, annual reports, press releases, or the information available at the
The base of general information covered governance issues including ownership structures, cross-ownership, shareholder rights, protection of minority shareholders, board composition and
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201064
protection of employees and customers and membership in international initiatives such as
Once data was collected, ESG scores for the top 100 companies were calculated and 30
interest from companies that want to learn how to improve their scoring through enhanced
Source: http://www.mi.gov.eg/en/EconomicIndicators/Pages/esgindex.aspx
As evidenced by these assessments, the level of transparency and disclosure in relation to ESG
the speed at which they grow will depend on a combination of government and securities market pressure through increased disclosure requirements, investor pressure for increased transparency,
Market Preparedness – Sustainability Reporting
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
65
Adoption of International Voluntary SI Frameworks by Asset Managers/Owners
There are a number of voluntary SI frameworks designed for use by the banking and investment industries, such as the UN Environment Programme Finance Initiative, UN Principles for
United Nations Environment Programme Finance Initiative
two (1 percent) are from the region.
Signatories to the UNEP Finance Initiative
Countries Number of Participants
Morocco 1
Oman 1
Regional Total: 2
Other Developing Economies
Brazil 3
China 4
India 2
Source: UNEP Finance initiative
United Nations Principles for Responsible Investment
There are currently 805 signatories globally to the UNPRI, including 210 asset managers, 437
The UNEP FI was launched in 1991 when a small group of commercial banks, including Deutsche Bank, HSBC Holdings, Natwest, Royal Bank of Canada, and Westpac, joined forces with UNEP to catalyze the banking industry’s awareness of the environmental agenda.
Source: http://unepfi.org
In early 2005 the UN Secretary-General invited a group of the world’s largest institutional investors to join a process to develop the Principles for Responsible Investment (PRI). Individuals representing 20 institutional investors from 12 countries agreed to participate in the Investor Group and accept ownership of the Principles.
Source: http://unpri.org
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201066
UN PRI Signatories
CountryAsset Managers
Investment Managers
Professional Service Partner
Total
UAE 1 0 1 2
Other Developing Economies
Brazil 17 18 9 44
India 0 1 3 4
Source: UN PRI
The Equator Principles
Equator Principles Signatories
Countries Number of Participants
Egypt 1
Morocco 1
Oman 1
Total: 3
Source: www.equator-principles.com
Market Preparedness – International Agreements
The Equator Principles were developed by private sector banks—led by Citigroup, ABN AMRO, Barclays and WestLB—and were launched in June 2003. The banks chose to model the Equator Principles on the environmental standards of the World Bank and the social policies of IFC.
Source: equator-principles.
com
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
67
ESG Disclosure AnalysisDespite the very low number of corporate ESG reporters, and the low number of signatories to
Analytical Inputs into “Market Preparedness for SI” Model—ESG Disclosure
Countries / Regions
Weighted Average for
“Sustainability Reporting”
Score
Weighted Average for “Voluntary
Frameworks” Score
Total ESG Disclosure Score
Oman 1.7% 35.7% 18.7%
Morocco 1.1% 15.4% 8.2%
Saudi Arabia 0% 0% 5.3%
Egypt 3.3% 3.5% 3.4%
UAE 6.9% 0.1% 3.5%
Tunisia 2.5% 0% 1.3%
Kuwait 0% 0% 0%
Lebanon 0% 0% 0%
Jordan 0.4% 0% 0.2%
Bahrain 0% 0% 0%
Qatar 0% 0% 0%
Source: Research and analysis conducted for this report
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201068
Market Preparedness – ESG Disclosure
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
18.70%
8.20%
5.30%3.50% 3.40%
1.30%0.20% 0% 0% 0% 0%
ESG Disclosure Score
69
Supporting Infrastructure
In recent years, a number of SI-related networks, associations, research institutions, initiatives, and
Infrastructure: Non-Financial Information Disclosure Scope
Global Reporting Initiative (GRI) Global
United Nations Global Compact (UNGC) Global
Shari’ah and SI Indices Scope
Dow Jones Islamic Market Sustainability Index
(companies must be components of both the Dow Jones Islamic Market Index and the Dow Jones Sustainability World Index)
Global
Dow Jones Islamic Market MENA (DJIM MENA) Index MENA
Dow Jones Islamic Market GCC (DJIM GCC) Index GCC
The Egyptian Corporate Responsibility (S&P/EGX ESG) Index Egypt
SI-related National Rankings Scope
The Arab Responsible Competitiveness Index (ARCI) MENA
The Saudi Responsible Competitiveness Index (Saudi RCI) Saudi Arabia
Responsible Competitiveness Research
Responsible Competitiveness comprises the leadership policies and practices that build sustainable
provide a systematic assessment of regional progress toward sustainable economies and
recommendations, outlining how the Arab region can convert societies’ existing and emerging
environmental and social concerns into the trade and economic competitiveness policies of
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201070
Responsible Competitiveness in Saudi Arabia 2009 report: The Saudi Arabian General Investment Authority (SAGIA), working closely with a range of experts, has embarked on
a coordinated program that is working to build responsible competitiveness in start-up 49
Independent Research Institutions Scope
Hawkamah Institute for Corporate Governance MENA
The Centre for International Private Enterprise (CIPE) MENA
The Egyptian Institute of Directors (EIoD) MENA
Institut Arabe des Chefs d’Entreprise (IACE) MENA
Al Urdun Al Jadid Research Center (UJRC) MENA
Arab Forum for Environment and Development (AFED) MENA
Sustainability Excellence MENA
Networks and Associations Scope
The Arab Sustainability Leadership Group (ASLG) MENA
The Abu Dhabi Sustainability Group (ADSG) UAE
The Egyptian Junior Business Association (EJB) Egypt
Development Finance Institutions Scope
IFC Global
49
71
Analysis and Summary of Key Observations
The elements summarized in this chapter correspond to the “Market Preparedness” component of
SI Framework
The analysis indicates that Oman has the highest Market Preparedness score of the markets in the
at similar points of development and that it may be possible to undertake regional or sub-regional
Market Interest
Total Assets Currently Invested in SI
Shari'ah
Compliant Funds
Sovereign wealth
Funds
Private Equity Foreign Investment
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
Actual and Potential Market for Sustainable Investment
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201072
Total Market Preparedness for MENA Countries
Country Total Market Preparedness for SI Score (out of 100%)
Oman 51.6
Saudi Arabia 38.7
Kuwait 39.3
UAE 47.8
Morocco 37.4
Egypt 37.1
Bahrain 42.7
Qatar 43.3
Tunisia 41.2
Jordan 40.1
Lebanon 34.7
Source: Research and analysis conducted for this report
Further analysis and summary of key observations relating to MENA Market Preparedness for SI yields the following:
region is becoming easier, and there is regional comprehension about the importance of better
this time for the environmental and social elements of ESG, could be the next step in this
International guidelines for disclosure of ESG information are starting to be adopted by
Sustainability Leadership Group and Abu Dhabi Sustainability Group—both of which seek to introduce sustainability practices in the region and require participants to produce standalone
sustainable development is now being incorporated into some national strategic plans, it is at
Addressing these gaps will be important to bolster MENA’s sustainability credentials and market
support to, and use of, regional sustainability networks, research institutions, associations, and
Recommendations arising from these observations, in combination with the observations from
73
Market Interest in SI is assessed by an analysis of current SI activity by different investment
Market Interest Framework
The total estimated percentage of assets under management (AUM) in MENA that fall under
Shari’ah compliant investments are not included in the MENA SI
There is varying but growing SI activity and awareness across all four of the investment methods
5051525354
Marketa Total AUMs Related to Sustainability % of Total AUM
1 EU50 $3,700 trillion 16.97%
2 Brazil51 $70 billion 12.00%
3 USA52 $2,700 trillion 11.02%
4 MENA $54.25 billion 2.13%
5 China53 $4.12 billion 1.00%
6 MENA without Shari’ah- compliant investments $17.1 billion 0.67%
7 India54 $1.1 billion 0.67%
Source: Research and analysis conducted for this report
50 Eurosif: 2008 European SRI study
51
52 Social Investment Forum 2007
53
54
Market Interest
Total Assets Currently Invested in SI
Shari'ah
Compliant Funds
Sovereign wealth
Funds
Private Equity Foreign Investment
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201074
Of these opportunities, the most widely practiced SI activity in the region is Shari’ah-compliant
widely adopted in terms of the number of engaged investors, and is prevalent across the MENA
Shari’ah compliant investors may not necessarily take an interest in broader SI, their commitment to Islamic ideals and general interest in betterment of society has the potential to translate into
perspective and explicitly incorporate sustainable development into those strategies, many of the
to expand international investments, they have encountered some concerns in target markets about
management by portfolio companies, and emerging clean technology investment opportunities in
which managed 20 percent of the region’s PE funds in 2008,55 has taken a leadership role through the development of its Ethical Framework for Investments and other SI-related activity and governance
55
75
Shari’ah-Compliant Investing
Market Interest – Shari’ah Compliant Funds
the most widely known and understood funds in the market, and the most widely adopted in terms
56 which accounted for 70 percent of
region’s total AUM, growth rates indicate Shari’ah-compliant funds show promise as an up-and-
platform for advancing investor interest in sustainability and SI that extends beyond negative screens to assess the environmental, social, governance, and broader economic performance of
investors will be interested in further exploring SI as they learn of the similarities with Shari’ah-
Bearing in mind such sensitivities, there are potential pathways for building upon Shari’ah-
Incorporating greater ESG considerations into the rules of existing Shari’ah-compliant
DinarStandard and Dar Al Istithmar issued in 2010, this trend is already emerging: 55 percent
Using awareness of Shari’ah-compliant investing as a pathway for creating interest in separate
56
Market Interest
Total Assets Currently Invested in SI
Shari'ah
Compliant Funds
Sovereign wealth
Funds
Private Equity Foreign Investment
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201076
Sovereign Wealth Funds
Market Interest – Sovereign Wealth Funds
57 state-owned investment funds
58 The Abu Dhabi Investment Authority (ADIA) is the 59
Source: Preqin Special Report: Sovereign Wealth Funds, May, 2010
57
58Global Investment House, 2010, MENA Private Equity Report
59
Market Interest
Total Assets Currently Invested in SI
Shari'ah
Compliant FundsSovereign wealth
Funds
Private Equity Foreign Investment
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
29%
41%
28%
34%
12%10%
19%
9%7%
5%
0%2% 2%2%
Asia MENA
Proportion of SWFs Proportion of Aggregate AUM
Europe NorthAmerica
Africa AstralasiaLatinAmerica &Caribbean
Number and Value of Sovereign Wealth Funds by Region
77
World’s Ten Highest Value Sovereign Wealth Funds (USD Billions AUM)
Rank Country Sovereign Wealth Fund (SWF) Value
1 United Arab Emirates
Abu Dhabi Investment Authority 627
2 Norway Government Pension Fund – Global 443
3 Saudi Arabia SAMA Foreign Holdings 415
4 China SAFE Investment Company 347.1
5 China China Investment Corporation 332.4
6 Singapore Government of Singapore Investment Corporation
247.5
7 China (Hong Kong)
Hong Kong Monetary Authority Investment Portfolio
227.6
8 Kuwait Kuwait Investment Authority 202.8
9 China National Social Security Fund 146.5
10 Russia National Welfare Fund 142.5
Source: Sovereign Wealth Fund Institute, 2010
Regional Sovereign Wealth Funds
Country SWFValue ($ Bn)
United Arab Emirates
Abu Dhabi Investment Authority 627
Investment Corporation of Dubai 19.6
Mubadala Development Company 24
Emirates Investment Authority Not disclosed
Abu Dhabi Investment Council Not disclosed
International Petroleum Investment Company 14
Ras Al Khaimah Investment Authority 1.2
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201078
Regional Sovereign Wealth Funds
Country SWFValue ($ Bn)
Saudi Arabia
SAMA Foreign Holdings 415
Public Investment Fund 5.3
Kuwait Kuwait Investment Authority 202.8
Qatar Qatar Investment Authority 65
Bahrain Mumtalakat Holding Company 9.1
OmanState General Reserve Fund 8.2
Oman Investment Fund Not disclosed
Sub-Total 1391.2
Total Regional SWF AUM Estimates* 1544.2
Source: Sovereign Wealth Fund Institute, 2010*Global Investment House, 2010, MENA Private Equity.
For identifying SI, either of the following criteria was accepted:
Increasing amounts of thematic investment in sectors relating to sustainability, including
Trends in governance, risk management, and transparency/disclosure by regional SWFs
Kuwait Investment Authority, Qatar Investment Authority, and Bahrain’s Future Generations
79
reports incorporate previously undisclosed information and included a basic report by ADIA, and
60 These disclosures also set the stage for inclusion
disclosures could include current environmental, social and governance screening, as well as
MENA SWF Transparency Ratings
Country SWFTransparency Rating
(1=low; 10=high)
United Arab Emirates
Abu Dhabi Investment Authority 3
Investment Corporation of Dubai 4
Mubadala Development Company 10
Emirates Investment Authority n/a
Abu Dhabi Investment Council 2
International Petroleum Investment Company
n/a
Ras Al Khaimah Investment Authority 3
Saudi ArabiaSAMA Foreign Holdings 2
Public Investment Fund 3
Kuwait Kuwait Investment Authority 6
Qatar Qatar Investment Authority 5
Bahrain Mumtalakat Holding Company 8
OmanState General Reserve Fund 1
Oman Investment Fund n/a
Source: Sovereign Wealth Fund Institute 2010
60
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201080
Alignment with national sustainable development strategies
cases, these plans are economic strategies, but more recently these are being expanded into broader strategies that incorporate environmental or social elements such as low-carbon competitiveness,
as national strategies increasingly incorporate ESG issues, so too do the investments undertaken
environmental and social gains for their societies may choose to enhance their ESG screening to serve
interest, such as Bahrain’s Mumtalakat Holding Company, which claims to support the integration of corporate responsibility into its core business (though the extent to which this may impact
Additionally, the Qatar Investment Authority claims that it takes ethical considerations seriously when selecting investment opportunities (although, again,
Thematic investments in sustainabilityFurther to the evolution of national strategies toward sustainable development, several MENA
percent stake Mubadala acquired in General Electric (GE) due to interest in GE’s Ecomagination
calculation of the percentage of AUM that classify as SI, accounts for only the AUM disclosed
81
least $710million in other clean technology via its stake in Azaliyah, a water services company
made were Mubadala’s investments, and an International Petroleum Investment Company (IPIC) invested in a company called EDP (formerly known as “Electricidade de Portugal”) as per the
Conservative Estimate of Current MENA SWF Sustainable Investments Based on Sustainability-Oriented Sectors
Country SWFSustainability-Oriented Sector
FocusValue ($ Bn)
UAE Mubadala
Renewable energy sector 1.69
Other clean technology * 0.71
Healthcare 0.18
Total Conservative SI Estimate 2.58 Billion
*Azaliyah, a wastewater management company 49% owned by MubadalaSource: Mubadala Annual Report.
As noted, the current SI as calculated in this report does not take into account the commitments
Estimate of Additionally Committed Sustainability-Themed Investments by SWFs
Country SWFPortfolio Company /
Sustainable FundValue ($ Bn)
UAE Mubadala Masdar 15
Bahrain Mumtalakat Edamah 2.65
QatarQatar Investment Authority
Cleantech Joint Fund with Carbon Trust
0.237
Total Estimated Additionally Committed SI 17.89 Billion*
Source: Publicly available information and news releases
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201082
sustainability of their respective sectors, and (2) the availability of sustainability reporting for the
Of the 140 publicly listed companies reviewed, 22 met the above criteria,61 and 17 of those were within Mubadala’s portfolio, including six healthcare companies, four education companies and
Case StudyMASDAR, The Abu Dhabi Future Energy Company
Masdar (the Abu Dhabi Future Energy Company) is a multi-faceted company advancing the development, commercialization and deployment of renewable energy solutions and
Masdar consists of three business units and one investment arm:
Masdar City is a clean technology cluster being developed on the outskirts of Abu Dhabi
venture capital investment vehicles focused on building portfolios of direct investments
In addition, Masdar is associated with the Masdar Institute of Science and Technology,
MASDAR Clean Tech Fund
the capital into two separate areas: $60 million is earmarked for leading funds focusing on cutting-edge clean technology, while the remaining $190 million is reserved for direct
MASDAR-GE Cooperation
Other Clean Tech Ventures
forms of renewable energy and clean tech, including but not limited to:
61
83
Two photovoltaic (PV) panel manufacturing plants in Erfurt, Germany, constructed at a
of British Petroleum, PLC, to develop an integrated natural gas-fed, hydrogen-fuelled
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201084
ESG issues results in reduced risk and accelerated innovation within portfolio companies, they
In addition to the four Mubadala portfolio companies adopting public sustainability reporting,
Conservative Estimate of Current MENA SWF Sustainable Investments Based on Sustainability Reporting by Portfolio Companies
Country SWFSustainability Reporting by
Portfolio CompaniesValue* ($ Bn)
UAE
Mubadala
Dolphin Energy (51%) 2.41
Aldar Properties (18.9%) 0.86
AMD (19.3%) 0.18
PSN Emirates (51%) Unknown
Investment Corporation of Dubai
HSBC Middle East Finance (20%)
Unknown
IPIC EDP (4%) 2.22
Total Conservative SI Estimate 5.66 Billion
*The SWF’s ownership stake of the portfolio company was considered, not the entire value of the portfolio companySource: Publicly available information in annual reports
The relevant value of portfolio companies issuing sustainability reports was included in the
Many of the region’sSWFs have a significant percentage of their holdings as majority stakes with long-term investment horizons, offering greater ability to influence investments. For example, Abu Dhabi’s Mubadala has at least a 50 percent stake in 36 of 69 disclosed portfolio companies, while Mumtalakat Holding Company in Bahrain has a majority stake in 42.9 percent of its disclosed investment portfolio.
For the purposes of this study, SWF portfolio companies who practiced sustainability reporting were considered as SI for the SWF, regardless of the sector or activity of that portfolio company.
85
SUMMARY:
Conservative estimate of current total MENA SWF sustainable investments
Criteria Used for Identifying SI Total SI Estimate
Sustainability-oriented industry 2.6 Bn
Sustainability reporting by portfolio companies 5.66 Bn
Total SWFs’ AUM under SI 8.25 Bn
Total % of SI by SWFs 0.54%
Source: Research and analysis conducted for this report
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201086
Private Equity
Market Interest – Private Equity
Private equity is playing a notable role in advancing sustainability and SI in the region, particularly
62 although this includes
63
64
study, SI among MENA PE was assessed by reviewing the disclosed practices and portfolios of
three years65
62
63
64
65
Market Interest
Total Assets Currently Invested in SI
Shari'ah
Compliant Funds
Sovereign wealth
FundsPrivate Equity Foreign Investment
87
The 14 Largest PE Firms in MENA
Private Equity Firm CountryGlobal Top 300 PE
Firm ranking*
Abraaj Capital UAE 50
Investcorp Bahrain 57
Arcapita Bahrain 76
Citadel Capital Egypt 92
Global Investment House Kuwait 148
SwiCorp Saudi Arabia 205
EFG-Hermes Private Equity Egypt 284
Abu Dhabi Investment Company UAE -
Amwal AlKhaleej Saudi Arabia -
Foursan Jordan -
ADCB-MCQ UAE -
Gulf Capital UAE -
EMP Bahrain -
Boubyan Kuwait -
*Source: Private Equity International Magazine’s Proprietary Rankings of the largest 300 PE Firms in the World, 2010
Clean technology-designated funds or investments (to include PE cleantech funds, other than
From an SI perspective, the most important aspect of PE investment is the extent to which
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201088
predominantly meant as a tool for portfolio company oversight and guidance, it also was designed
Estimated PE AUMs that Involve Independent Integration of ESG Issues into Investment Screening
PE Firm Fund
Funds Raised ($ Millions)66
Total Projected
Fund Size ($ Millions)
Independent Sustainability
Screen Employed
Abraaj Capital All Abraaj funds 6,600 6,600
Ethical Framework for Investments (EFI)
Total MENA PE SI using in-house ESG screens 6.6 Bn
*Only ASAS was counted as independent sustainability screened fund for Abraaj capital, as it was the only fund that indicated making a screening process.Source: Abraaj Capital Annual Report
such as OPIC that have ESG policies
an example, in 2010,
$250 million, and will invest in sectors driven by consumer demand such as consumer goods, retail, 66
66
89
Estimated PE AUMs that use Partner-Driven ESG Screens in Investment Screening
PE Firm FundFunds
Raised ($ Millions)67
Total Projected Fund Size
($ Mn)
Sustainability Screen Employed
World Bank / IFC Partnered
OPIC Partnered
Abraaj Capital
Riyada Enterprise Development Growth Capital Fund 150 500
Citadel Capital
Citadel Capital Joint Investment Fund 500 500
Meitito* 20 260
120 263
Citadel Cap Fund 25 500
EFG Hermes EFG-Hermes 120 120
SwiCorp Swicorp Intaj Capital LP 200 250
Foursan Group Foursan Capital Partners I 100 200
Catalyst Catalyst PE Fund I Limited 50 100
Argan Argan Infrastructure Fund 269.8 269.8
Belton Belton Midcap Fund - Egypt 25 200
Sphinx Sphinx Turnaround Fund 20 100
Capital Invest Capital North Africa Private Equity Fund 6.7 53.9
Tuninvest Maghreb Private Equity Fund II 160.15 160.15
Accelerator Technology Holdings
Accelerator Technology and Innovation Capital Partners 25 75
KIPCO KIPCO Opportunity Fund 150 1000
Total MENA PE SI using partner-driven ESG screens 1.94 Bn
*Meitito is a wastewater treatment companyFunds Raised and Total Projected Fund Size Source: Publically available information, including funds’ websites. Numbers used represent
IFC Partner Source: IFC WebsiteOPIC Partner Source: OPIC Website
67
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201090
value gains may lead to the adoption of sustainability management across a growing number of
As awareness of sustainability trends grow in the MENA region, so too should widespread
that are already pressing in the short-term, such as water management or energy infrastructure
issues such as low-carbon competitiveness and the transition to renewable energy are also on the
PE Cleantech Investments in the MENA Region
Fund Manager FundFunds Raised
$ Millions
EFG-Hermes InfraMed 303
Masdar Venture Capital Masdar Clean Tech Fund 250
Masdar Venture Capital DB Masdar Clean Tech Fund 265
Catalyst Private EquityCatalyst Private Equity Fund I Limited
50
Total Private Equity Cleantech Investments Found 868
Source: Publicly available information including funds’ websites, news releases, etc.
91
public securities markets
68
69
70 Although survey results may not match actual performance, these
investments in the public market are likely to be direct and not through any form of sustainability-
To calculate the current total PE SI AUMs, the SI AUMs for each of these four areas of PE SI activity
If Shari’ah-compliant investments are excluded from the SI calculations, the amount of PE SI will
68
69
70
71
Overall Calculation of Percentage of PE AUMs Qualifying as SI
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201092
Total Conservative PE SI in the MENA Region
SI Dimensions of PE Number of Funds
Total Projected
Funds Size ($ Millions)
Funds Raised ($ Millions)
Independent Sustainability Screen Employe
7 6,600 6,600
Sustainability Screen Employed by Partnered World Bank/IFC and OPIC Projects
16 4,551.90 1,942
Clean Technology Designated Funds 4 2,139.50 868
Shari’ah Compliant Funds 2 350 350
Total SI invested in MENA* 9,560
Total SI invested in MENA via PE accounting for SWF investments
7,714
% of PE Investments that are SI 43.26%
* Catalyst fund and Abraaj Capital Fund Riyada were deducted for not double counting since catalyst is
cleantech and IFC partnered fund and Abraaj Capital Fund, Riyada is independent screened and also OPIC
partnered fund.
Source: Research and analysis conducted for this report
93
Foreign Investment
Market Interest – Foreign Investment
72
72
Market Interest
Total Assets Currently Invested in SI
Shari'ah
Compliant Funds
Sovereign wealth
Funds
Private Equity Foreign Investment
500
450
400
350
300
250
200
150
100
50
0
449.5
Val
ue
in U
SD
Mn
259.1
156.02
82 7966.1
51.1725.15 14.5
2 2
Total IFC Investments in MENA (Totaling $ 1.19 Bn)
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201094
country or sector, depending on the extent to which those companies also may communicate
73 Another example is the Netherlands-based ABP Stitchting
74
Currently, there is more than $2 trillion dollars in sustainability-screened funds invested in global
funds to be channelled into the MENA region, the funds have a limited interest due to a) minimal transparency in the region in terms of sustainability performance disclosure by companies, b) a lack of interest and development of sustainability practices in the region, and c) national economies still
immediate surge of sustainability-screened foreign investment in securities markets seems unlikely
73
74
Number of InvestmentsTotal Value of Investments
Egypt
160
140
120
100
80
60
40
20
0Morocco* UAE**
157.9
Val
ue
in U
SD
Mn
32
54.641.72
8 1
Foreign SWF Investments in MENA
95
Analysis and Summary of Key Observations
The MENA SI activities summarized in this chapter correspond to the “Market Interest” component
SI Framework
a conservative estimate based solely on disclosed data, and even excludes publicly committed If Shari’ah-compliant investments are
excluded from the SI calculation, the percentage of MENA AUMs which incorporate SI will be
Market Interest
Total Assets Currently Invested in SI
Shari'ah
Compliant Funds
Sovereign wealth
Funds
Private Equity Foreign Investment
ESG Disclosure
Investment Regulations
Environment Regulations
andPerformance
Sustainability Reporting
Governance Regulations
andPerformance
SocialRegulations
andPerformance
International
Agreements
Investment and ESG Regulationsand country Performance
Market Preparedness
Actual and Potential Market for Sustainable Investment
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201096
Summary of Sustainable Investments in MENA by Country
CountryTotal SI
($ Billions)
% of
Regional
SI
Total SI without
Shari’ah Compliant
Investments ($ Billions)
% of
Regional
SI
Saudi Arabia
23.012 42.4 0.213 1.24
UAE 20.495 37.8 14.113 82.4
Oman 4.014 7.4 0.014 0.08
Egypt 2.015 3.7 1.523 8.89
Kuwait 1.403 2.6 0.203 1.19
Bahrain 1.202 2.2 0.002 0.01
Qatar 0.757 1.4 0.002 0.01
Jordan 0.601 1.1 0.400 2.34
Morocco 0.434 0.8 0.434 2.53
Tunisia 0.195 0.4 0.195 1.14
Lebanon 0.125 0.2 0.025 0.15
Source: Research and analysis conducted for this report
An analysis and summary of key observations relating to these MENA SI activities yields the following:
including Shari’ah-compliant investment
Shari’ah-compliant investment funds are similar to “negative-screen” SI funds in that their current scale of awareness and uptake represents a mass platform for creating greater awareness of SI. Elsewhere in the world, negative-screen funds typically precede positively-screened SI funds that subsequently adopt aggressive criteria for environmental, social and
pattern, their commitment to Islamic ideals and general interest in betterment of society has the
SI uptake in MENA is likely to take some time, although at dramatically compacted timelines when compared to Europe and North America. In addition to the currently low percentage of MENA SI AUM versus total AUM, there are other factors in the market that will affect
97
for take-up of SI in the region will be accelerated compared to the timeline in North America
PE SI initiatives will have a disproportionate impact on Market Interest, even as MENA
and reporting by portfolio companies, key PE stakeholders (including some of the region’s
SWFs represent the greatest MENA SI opportunity
on sustainability (including emerging theme-based investments in sustainability and clean
markets will be less than the general increase in demand for SI across the MENA business
Some foreign-based guidelinesPrinciples, and other international guidelines as outlined elsewhere in this report will provide some support for the adoption of SI in that they offer a means of piloting SI-screening with
The recommendations arising from these observations, in combination with the observations from
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 201098
This report explores two key axes for assessing the challenges and opportunities for the development of the SI market in MENA: The state of Market Preparedness and the level of Market Interest as
Based on the application of the analysis framework, the scores on a market-by-market basis break down as follows:
Country GDP*
($ Billions)
Market
Preparedness
Score (%)
Market Interest
Score (%)
Market Interest
Score without
Shari’ah-Compliant
Investments (%)
Bahrain 28.124 42.67 3.3 0.01
Egypt 469.663 37.1 2.30 1.71
Jordan 33.658 40.06 1.90 1.25
Kuwait 135.429 39.34 0.40 0.06
Lebanon 54.874 34.67 0.60 0.13
Morocco 145.969 37.41 0.70 0.70
Oman 74.431 51.56 14.30 0.05
Qatar 102.147 43.34 0.40 0.00
Saudi
Arabia592.586 38.67 2.90 0.03
Tunisia 86.086 41.09 1.50 1.50
UAE 179.321 47.83 2.50 1.70
*Based on PPPSource: Research and analysis conducted for this report
for Development of the Sustain-able Investment Market in MENA
99
Combining the Market Preparedness and Market Interest scores results in the following table
engagement with regional stakeholders consistently emphasizes that the starting point for catalyzing
and investing, which is not generally associated with sustainability, there is limited awareness of
investments is as follows:
Market Interest
Market Interest
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
UAE
Jordan
Lebanon
Egypt
Morocco
Tunisia
-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Regional Analysis(Bubble size corresponding to PPP adjusted GDP in Billion International Dollar)
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010100
Nevertheless, the broad take-up of Shari’ah-compliant banking and investing represents a potential
for both the private sector and the public sector in the region which, if appreciated, would be the
limited SI activity by Shari’ah investors outside of Shari’ah considerations, there are important
As Market Interest in SI accelerates in the forms of the adoption of sustainability management, reporting, and SI by market leaders, the path will be cleared for the development or enhancement of relevant government policies, regulations, incentives, institutions, tools and awards to support the
by leadership companies, but such government interventions are most likely to be implemented only
The combination of enhanced awareness, leadership of important regional stakeholders, and ensuing advancements in the regulatory environment is likely to result in a robust SI market within
Market Interest
Market Interest
-0.02% 0.00% 0.02% 0.04% 0.06% 0.08% 0.10% 0.12% 0.14% 0.16%
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
UAE
Jordan
Lebanon
Egypt
Morocco
Tunisia
Regional Analysis without Shari’ah Compliant Investments included as SI (Bubble size corresponding to PPP adjusted GDP in Billion International Dollar)
101
Key Challenges and Opportunities
SUMMARY:
The following table represents an abbreviated summary of the key observations captured in the
Key Observations Challenge / Opportunity
Shari’ah-compliant investment funds are similar to “negative-screen” SI funds and their current scale of awareness and uptake represent a potential mass
Private equity SI initiatives will have a disproportionate
SI uptake in MENA is likely to take some time, although at dramatically compacted timelines
Create awareness of the case for sustainability for business
Foreign SI investment in MENA is at very low levels, Ensure availability of corporate ESG data in the marketplace
reforms and requirements, but this has not yet extended Align securities markets reform to national sustainability interests and disclosure
Some foreign-based guidelines (such as GRI, UN Global Compact, UNPRI, and others) will provide
Increase comfort and reduce hesitation of potential early adopters by utilizing well-established international
There is a growing recognition of a need for action on some pressing sustainability issues, even if the broader
Mobilize rapid and broad disclosure and action on high
The MENA market structure, particularly GCC, has Create infrastructure that supports sustainability in
Increase the percentage of
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010102
Recommendations
SUMMARY:
Challenge / Opportunity Recommended Action
Market Preparedness
Create awareness of the case for sustainability for business
Ensure availability of corporate ESG data in the marketplace for
Promote widespread Sustainability Reporting:� Incentivize disclosure through the launch of Sustainability Indices at a
market interest, level and maturity of public sustainability disclosure and
�
Align securities markets reform to national sustainability interests and disclosure
Expand governance reform and criteria on securities markets to include management
Increase comfort and reduce hesitation of potential early adopters by utilizing well-established international
Mobilize rapid and broad disclosure and action on high
Create infrastructure that supports sustainability in
Promote investment and entrepreneurship in service areas critical to a more sustainable
Market Interest
Increase the percentage of Encourage institutional fund managers to integrate sustainability into their screening
103
Recommendations—Details
Each of the above recommendations can be elaborated upon as follows:
Market Preparedness
convert into public sustainability commitments.
Recommended Actions:
– Encourage corporate and government membership in learning and experience-sharing forums that simultaneously require commitments, such as the Arab Sustainability
This sub-committee also can seek to engage international stakeholders with longer-term
– Launch region-wide training on institutional investor business-case for sustainability screening, undertaken independently or in collaboration with above networks such as the
– Encourage each MENA government to conduct review and enhance integration of
– Launch an SI Magazine that captures leadership practices and commitments, and reports
Measure: Increased number and intensity of sustainability commitments by business and
investors.
Recommended Actions:
Promote and incentivize widespread sustainability reporting through the launch of
– Sustainability indices based on public sustainability performance disclosure require sustainability reporting by publicly-listed companies who wish to participate in and
securities market tends to catalyze widespread sustainability reporting without actually
and reputation-related competitiveness is often most prevalent at the national level (and can even indirectly promote sustainability reporting of large non-listed family-owned
the consistency of methodology, these can be aggregated into a regional Index to generate
Promote and incentivize widespread sustainability reporting through the creation of prestigious
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010104
–
that regional-level as well as national-level awards be developed, with appropriate high-
Measure
interests.
Recommended Actions: Expand governance reform and criteria on securities markets to include management and
– Many securities markets across the MENA region have demonstrated considerable progress in enhancing governance criteria and disclosure requirements for publicly listed
can be complemented by reasonable additional reforms that need not place unmanageable
governance element by enhancing the focus on the environmental and social dimensions of ESG, essentially adopting a range of guidance on sustainability management and
national level sustainability forums and networks so as to promote the widest possible
Measure: Percentage of securities markets requiring established basket of ESG disclosure
well-established international guidelines.
Recommended Actions: Leverage international guidelines and tools to accelerate speed and ease of take-up of
– There are numerous international guidelines and tools that provide a sound level of
– The efforts of leadership companies and governments adopting these guidelines should be
105
Measure: Number of regional signatories or adopters of GRI, Equator Principles, CDP, CDP
Challenge: Mobilize rapid and broad disclosure and action on high-priority sustainability issues.
Recommended Actions:
– may be most easily encouraged by placing emphasis on those sustainability issues
scope and complexity of sustainability management, may serve as a manageable bridge to
–
that aim to tackle the highest priority regional sustainability issues in a manner that could
by national governments or business associations—or they could be led by regional
tools can be adopted to facilitate the process (such as CDP for GHG emissions and CDP
Measure: Number and percentage of publicly-listed companies, private companies, and other
Recommended Actions: Promote investment and entrepreneurialism in service areas critical to a more sustainable
– This recommendation derives from the combined regional challenges of a lack of supporting infrastructure for a sustainability-oriented economy (such as recycling facilities, green
investment opportunities to address these market gaps, which increase SI opportunities and
services come online, governments can reinforce the use of such services and infrastructure through legislative requirements, which, in turn, would promote further industry
oriented industries exist, governments could use long-term legislation to create market attractiveness for potential sustainability-related investments
Measure:
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010106
Market Interest
Recommended Actions: Encourage institutional fund managers to integrate sustainability into their screening criteria
– The emphasis of this recommendation is that institutional fund managers and fund marketers need not be sold on the marketability of sustainability-screened investing before
of sustainability management, performance, and reporting in the marketplace, regardless
programs targeting institutional investors and the participation of key companies in regional leadership networks and sub-committees both aim to provide learning platforms
– sustainability-screened investment funds, they may over time promote their sustainability-
market awareness evolve further, these institutions may wish to begin launching explicit
–
Measure: Percentage of regional AUM using sustainability screens, including measured
107
Appendix 1-Explanation of the Methodology
The methodologies used for the research and analysis of this report’s main sections are summarized
MARKET PREPAREDNESSESG and Investment Regulations and Country Performance
The assessment of ESG and investment regulatory frameworks in each market allowed for some
report were:
Investment laws and regulations:
– The eStandards Forum75 index, which assesses the investment laws and regulations of
Governance laws and regulations:
– Director Liability Index and the Extent of Disclosure Index, two component indices of
76
–
Corporate governance country performance:
–
–
–
Environmental laws and regulations:
–
–
Environmental country performance:
– 77
Social laws and regulations:
– Gender Empowerment Measures index from the UNDP Human Development Report,
–
– Doing Business
Social country performance:
–
75
76
77
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010108
–
– Human Rights Ranking by Carleton University’s Country Indicators for Foreign Policy
ESG Disclosure
The assessment of ESG disclosure was based on two factors:
Register:78 The score for this factor was generated by assessing the total number of publicly
Voluntary international agreements: The score for this factor was an averaged ratio of the following:
– Total assets of signatories to the Equator Principles (EPs) in each country to the total assets
– Total assets of banks that are signatories to the UNEP Finance Initiative (UNEP FI) in each
– Total assets under management (AUM) managed by signatories to the UN PRI to the total
78
109
Weight Allocations Across the Market Preparedness Dimension
MARKET INTERESTAssets currently invested using forms of SI
Market Interest was assessed based on the percentage of total assets under management estimated
based sovereign wealth funds, MENA investment funds (which includes, but is not limited to,
covered all AUM within these four categories in all 11 markets studied, to the extent possible based
Weight Allocations Across The Market Interest Dimension
Market Interest
% of Total Assets Currently Invested in SI (100%)
Shari'ah
Compliant Funds Funds
Private Equity Foreign Investment
ESG Disclosure(33.3%)
Investment Regulations
(25%)
Environment Regulations
andPerformance
(25%)
Sustainability Reporting
(50%)
Governance Regulations
andPerformance
(25%)
SocialRegulations
andPerformance
(25%)
International
Agreements
(50%)
Investment and ESG Regulationsand country Performance (66.7%)
Market Preparedness
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010110
Appendix 2-In-depth review of 11 key markets
111
Bahrain
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010112
Bahrain
113
Bahrain
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010114
Egypt
115
Egypt
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010116
Egypt
117
Jordan
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010118
Jordan
119
Jordan
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010120
Kuwait
121
Kuwait
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010122
Kuwait
123
Lebanon
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010124
Lebanon
125
Lebanon
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010126
Morocco
127
Morocco
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010128
Morocco
129
Oman
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010130
Oman
131
Oman
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010132
Qatar
133
Qatar
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010134
Qatar
135
Saudi Arabia
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010136
Saudi Arabia
137
Saudi Arabia
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010138
Tunisia
139
Tunisia
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010140
Tunisia
141
United Arab Emirates
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010142
United Arab Emirates
143
United Arab Emirates
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010144
Appendix 3 - RegionalSupporting Infrastructure
Supporting Infrastructure
Despite the modest size of SI in the MENA region at the moment, and the relatively immature infrastructure to support SI overall, it is crucial to identify the supporting infrastructure that might
Non-Financial Information Disclosure
Global Reporting Initiative (GRI)Global Reporting Initiative (GRI) is a network-based organization that has pioneered the
provides information on all the sustainability reports published by organizations, and it is considered
79
The United Nations Global Compact is an initiative developed by the UN to promote the adoption
the UNGC is self-perpetuating, since businesses that participate in it commit to aligning their
80
Sustainability Indices – Regional Level
Dow Jones Islamic Market Index (DJIM)
79
80
145
81
(2) Dow Jones Islamic Market GCC Index82
83
Sustainability Indices – National Level
The Egyptian Corporate Responsibility Index (The S&P/EGX ESG Index) – Egypt84
the region to track the performance of companies listed on the Egyptian Stock Exchange that excel
& Poor’s (S&P), the world’s leading index provider, the index comprises a unique and innovative
The index also helps create a sustainable competitive business environment by enhancing the quality and level of disclosure to investors while promoting a culture of social responsibility among
to disclose governance, social, and environmental practices, and to increase competitive advantage
The Saudi Responsible Competitiveness Index (Saudi RCI) – Saudi ArabiaThe Saudi Responsible Competitiveness Index is a multi-year initiative by the Saudi Arabian
program is to help companies in the Kingdom of Saudi Arabia allocate new areas of value creation, and provide support for the Saudi General Investment Authority’s aim to achieve its goal in making
The Saudi RCI assesses the social, environmental, and economic performance of companies using a
companies are rewarded with the prestigious King Khalid Responsible Competitiveness Award
81
82
83
84
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010146
Independent Research Institutions – Regional Level
85
Hawkamah was created to bridge the governance gap by assisting countries and businesses in
Hawkamah provides analysis, research, and technical assistance by commissioning regional IIF/
Hawkamah Report on Corporate Governance of GCC Countriesindividual country reports for Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab
86
The Centre for International Private Enterprise strengthens democracy around the globe through
advocacy, business associations, corporate and democratic governance, access to information,
CIPE’s work in the MENA region involves a broader cross-section of society in the process of
involve supporting grassroots and other business associations through programs on anti-corruption
support will render these organizations capable of representing the private sector by participating in
87
The Egyptian Institute of Directors (EIoD) is a professional and research center operating under
corporate governance in the MENA region, and to do so in a manner that meets the best interests of
(International Finance Corporation), Organization for Economic Cooperation and Development
88
‘Code of Best Practice of Corporate Governance’
85
86
87
88
147
89
conferences and workshops, and serves as a point of expertise and information exchange with other
As part of the Fifth MENA Development Forum (MDF5)90, the center implemented a successful ‘Strengthening Responsible Corporate Citizenship in the
Businesses of the MENA Region’. Two North African case studies for Egypt and Morocco were
91
business community, and media, and aims to promote sensible environmental policies and programs
Publications by AFED include ‘Arab Environment: Climate Change’, and ‘Arab Environment: Future Challenges’ ‘Making a Transition to a Green Economy: Challenges and Opportunities’, and ‘AFED’S Corporate Environmental Responsibility (CER)’.
Sustainability Excellence Sustainability Excellence is a consultancy based in the Arab region providing sustainability strategy,
the ‘Responsible Competitiveness in the Arab World’ responsible competitiveness index that correlated responsible practices with the competitiveness of
‘Responsible Competitiveness in Jordan’,
Networks and Associations – Regional Level
The Arab Sustainability Leadership GroupThe Arab Sustainability Leadership Group (ASLG) is a Queen Rania Al Abdullah initiative, aiming
with a commitment to achieving the highest levels of sustainability management, performance,
delivered on their commitments to adopt sustainability management and reporting, highlighting
89
90
91
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010148
The Abu Dhabi Sustainability Group (ADSG) is a membership organization whose mission is to promote sustainability management in Abu Dhabi by providing learning and knowledge sharing
commit to adopting best practices of sustainability management and reporting, and to participate
92
The association counts a network of 600 prominent members of young business executives and
sustainable business environment through vision, hope, and enthusiasm to stand as one of Egypt’s
The association established a taskforce on corporate governance to spread awareness and
‘Corporate Governance… The Future for Family Firms’
Development Finance Institutions
IFC (International Finance Corporation)93
Among IFC’s efforts in the MENA region is the production of the ‘Corporate Governance Success Stories’ report, which presents an overview of companies in the region that have taken serious steps
Egypt on free Investment zones where IFC continues to support the Egyptian government’s efforts
and sustainable private sector, IFC delivers investment and advisory services through its network
92
93
149
Civil Society
No civil society organizations have played explicit roles in promoting SI in the MENA region, but
several countries, and the ability of citizens to drive up business performance is building, resulting in a growing pressure for government and corporations to accelerate the adoption of sustainable
Consequently, civil society organizations in the region require extensive capacity- building to
pressure they can exert on investors, listed companies and other concerned stakeholders to support
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010150
Appendix 4 - Exchange Rates Used
Exchange Rates Used
Country
Bahrain 2.65224
Egypt 0.17528
1.41044
Kuwait 3.47826
Lebanon 0.00067
Morocco 0.11603
Oman 2.59707
Qatar 0.27484
Saudi Arabia 0.26666
Tunisia 0.67967
United Arab Emirates 0.27226
Euro 1.28952
United Kingdom 1.54461
Source: http www xe com currency , accessed September 4, 2010
151
Appendix 5- Explanation of Terms and Abbreviations
Explanation of terms
An explanation of relevant terms relating to SI, investor types, and the MENA capital markets used in the report follows:
Investment Terms
Assets Under Management
Fixed income
Periodic investment income produced for investors at reasonably predictable levels by a variety of municipal, corporate, and government agency bonds, as well as by other high-yielding
Exit strategyA strategy practiced mostly by private equity houses to exit an
Foreign Direct investment
Family owned businesses
State-owned enterprises
A legal entity created by government to undertake commercial
Sustainable Investment Terms
ESG IntegrationThe explicit inclusion by asset managers of environmental, social,
Negative ScreeningThe exclusion investment approach where negative criteria
Positive Screening
An investment approach that seeks to invest in companies with
It over-weights companies that demonstrate environmental or socially responsible leadership, and under-weights companies
Best in ClassAn investment approach where the leading companies with regard to ESG criteria from each individual sector or industry group are
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010152
Thematic InvestmentAn investment approach that focuses on a subset of equities
Shareholder Activism
behavior by exercising their rights as owners, often through
this is done to promote shareholder resolutions focused on
Engagement
An approach applied by fund managers to encourage more
Engagement may extend to voting practices and include
MENA-Relevant Terms
Zakatof a person’s wealth, to be used to support the poor, aged, and debtors
depending on the wealth of the person, and the means by which they
FatwaAn Islamic decree issued by a mufti (scholar) or a religious lawyer on a
Shari’ah-compliant
An act or activity that complies with the requirements of the Shari’ah,
Islamic Banks
Islamic banking practices are those that conform with Shari’ah principles
Sukuk
Sovereign
CleantechCleantech refers to any clean technology which reduces the environmental
Islamic Funds
153
Glossary of Abbreviations
Acronym
ADIA Abu Dhabi Investment Authority
AFEDArab Forum for Environment and Development
ARCI Arab Responsible Competitiveness Index
AUM Assets Under Management
CAGR Compound Annual Growth Rate
CEO
CIA Central Intelligence Agency
CIB Commercial International Bank
CIFP Country Indicators for Foreign Policy
CIPE Center for International Private Enterprise
CPI Corruption Perception Index
CSE Casablanca Stock Exchange
CSR Corporate Social Responsibility
DJIM Dow Jones Islamic Market
EFI Ethical Framework for Investment
EHS Environment, Health and Safety
EIoD Egyptian Institute of Directors
EMEA Europe, Middle East, and Africa
EP Equator Principles
EPI Environmental Performance Index
ESCAEmirates Securities and Commodities Authority
ESG Environment, Social and Governance
FDI Foreign Direct Investment
FOE Family Owned Enterprises
GAPP Generally Accepted Principle of Practice
SUSTAINABLE INVESTMENT IN THE MIDDLE EAST AND NORTH AFRICA, 2010154
GCC Gulf Co-operation Council
GDP Gross Domestic Product
GE General Electric
GEM Gender Empowerment Measures
GNP Gross National Product
GP General Partner
GRI Global Reporting Initiative
HNWI High Net Worth Individuals
IFC International Finance Corporation
IIF Institute of International Finance
ILO International Labor Organization
IMF International Monetary Fund
IPICInternational Petroleum Investment Company
IPO Initial Public Offering
IWG International Working Group
LP Limited Partner
LTA Lebanese Transparency Association
MENA Middle East and North Africa
MSE Muscat Securities Exchange
NGPF Norwegian Government Pension Fund
OECDOrganization for Economic Co-operation and Development
OPIC Overseas Private Investment Corporation
PE Private Equity
PLC Publicly Listed Company
PPP Purchasing Power Parity
RCIResponsible Competitiveness Index – Saudi
S&P Standard and Poor’s
155
SAGIA Saudi Arabian General Investment Authority
SEZ Special Economic Zone
SI Sustainable Investment
SOE State Owned Enterprise
SSIF Social Security Investment Fund
SWF Sovereign Wealth Fund
UAE United Arab Emirates
UHNWI Ultra-High Net Worth Individuals
UNGC United Nations Global Compact
UN PRIUnited Nations Principles for Responsible Investment
UNDP United Nations Development Program
UNEP FIUnited Nations Environment Program Finance Initiative
USD United States Dollar
WEF World Economic Forum
2011
top related